S&P 500’s Torrid Rally Seen Having ‘More Fuel Left’ From AI, Fed

by Jessica Menton of Bloomberg News, 10/8/25

The rip-roaring rebound in US stocks from the brink of a bear market six months ago will go down in history for its speed and resilience. And bulls expecting the good times to continue have history on their side.

The S&P 500 Index has advanced 35% since its April 8 trough, when fears that US President Donald Trump’s trade war will push the economy into recession sent markets into a tailspin. A six-month advance of this magnitude was seen in just five other instances since 1950, data compiled by Bloomberg show.

The rally has defied skeptics, with easing trade tensions, signs of corporate resilience and insatiable demand all things AI pushing stocks into 32 all-time highs this year. And more gains could be in store: When US stocks hit a record in September in the past, they proceeded to rally in the fourth quarter, gaining 4.8% on average during that time, according to the Stock Trader’s Almanac’s data going back to 1950.

“Are we in a bubble? No. The stock market still has more fuel left in the tank,” said Nick Giacoumakis, president of NEIRG Wealth Management, who said he wouldn’t be surprised to see the S&P 500 pull back 5% to 7% in the coming weeks or months before a year-end rally. “It’s such a strong market that I’ll be buying any dips from here.”

While the S&P 500’s push to fresh records made equity valuations appear swollen, signs of anxiety are hard to find. The Cboe VIX Index is hovering near 17, below its long-term average, while the 500-member gauge hasn’t clocked a 1% move in either direction in 31 sessions — the longest stretch since 2020.

Optimism over Federal Reserve interest-rate cuts has helped power the rally, with investors largely offsetting signs of economic cooling and a slowing labor market.

But while such a strong six-month S&P 500 rally has historically boded well for the rest of the year, some worry about wild cards on the horizon. The US government shutdown, which began on Oct. 1, is one of them. Uncertainty about the path of rate cuts is another. Then, there’s uncertainty about the impact of Trump’s tariff war on the economy.

Trump said this week that 25% duties on medium- and heavy-duty trucks would begin Nov. 1, the latest expansion of his tariff regime aimed at protecting domestic industries. That comes just as the effects of the first tariff wave are expected to show up in earnings. JPMorgan Chase & Co. will kick off the reporting season Oct. 14, and expectations for profit growth are high.

The reports are expected to show that S&P 500 profits grew by 7.2% in the third quarter from a year earlier, according to data compiled by Bloomberg Intelligence. That’s the third-highest pre-season forecast in the past four years, and it threatens to put equities on a shaky footing if the results — or the outlook for the months ahead — fall short.

Couple that with lingering concern that the rally in tech stocks looks excessive, with rich valuations and just a handful of high-flyers pushing the market skyward.

The 14-day relative strength index on the VanEck Semiconductor exchange-traded fund (SMH), which houses chip bellwethers like Nvidia Corp., Advanced Micro Devices Inc. and Intel Corp., is sitting near the most overbought level since 2017, a banner year for tech shares that saw a sharp, sudden selloff toward the year’s end. Often such levels indicate a decline is imminent.

So far, stocks have climbed the proverbial wall of worry as investors brushed off uncertainty about government shutdown and tariffs. Take Giacoumakis, who’s been broadening out equity exposure to financials and energy since the Fed lowered interest rates last month, while maintaining his existing stake in technology shares.

There is a culprit lurking beneath these moves: short-covering. Take a Goldman Sachs Group Inc. basket of the most-shorted stocks. It’s surged 15% since the Fed lowered rates on Sept. 17, beating the S&P 500’s 1.7% gain. The basket gained 12% last month in its best September since 2010.

The implication is some investors are covering ahead of the Fed’s next rate decision on Oct. 29.

“There has been months ferocious buying for stocks the past six months, and this is now like a rubber band getting stretched to the upside,” said Adam Sarhan, founder of 50 Park Investments, who is waiting for any declines to add to his tech positions. “A selloff is eventually coming. It’s a matter of when, not if. But the bull market is no where from being over.”

A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.

Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

S&P 500’s Torrid Rally Seen Having ‘More Fuel Left’ From AI, Fed

Sponsored Content

Trending Topics View All

Upcoming Virtual Events View All