"It's a meltdown"
US stocks have risen unusually sharply on the vacation road
Gabriel ThomasOctober 5, 2026
The US stock market is soaring just before the holidays.
"It's a meltdown," said Zhiwei Ren, managing director and portfolio manager at Penn Mutual Asset Management, in a telephone interview. "It's a very bizarre rally," he said, expressing concern at the rate of recovery after the September setback.
All three major US stock benchmarks climbed to new highs on Friday, marking gains for the S&P 500 SPX, -0.49%, the Dow Jones Industrial Average DJIA, -0.51% and the Nasdaq Composite COMP, for the fifth straight week -0.64%.
Last week, the benchmarks hit a new all-time high for the fourth day in a row, marking their longest joint profit streak since October 2017, according to Dow Jones Market Data. And the S&P 500 has only seen two falling days in the last 18 trading sessions.
The US Federal Reserve barely stands in the way of an increasingly valued stock market as it has maintained its loose monetary policy even after its November 3rd announcement that its quantitative easing program would expire this year. Fed chair Jerome Powell said the central bank can be patient but will not hesitate to raise interest rates should inflation accelerate.
However, some investors are concerned that the Fed may be behind the curve.
"The economy continues to boil and stocks love the very loose monetary policy," wrote Paul Nolte, portfolio manager at Kingsview Investment Management, in a November 1 note. "The extra kick from the government infrastructure bill will only add dry tinder to an already hot fire.
The US Federal Reserve does not want to unsettle the financial markets, which was only hinted at decades ago but is now clear, "Nolte told MarketWatch on Friday. The central bank continues to" pump money into the system "at a time in which the valuations of the stocks are "very high".
According to Nolte, the stock market is too far ahead of corporate earnings. While "valuations are a lousy timing tool," tighter monetary policy could eventually become a catalyst for lower stock prices, according to Nolte, who believes the Fed should start raising rates at this point.
"Economic policy has never been easier during an economic boom," he said.
The Fed kept its key interest rate near zero during the economic recovery from the pandemic.
Before the pandemic, the central bank attempted a quantitative tightening in the fourth quarter of 2018 and announced an interest rate hike in December of the same year - but the measures did not have a positive effect on the stock market, recalls Nolte. It wasn't until after Christmas that Chairman Powell made "a little U-turn" and contributed to a rally after stocks fell.
The S&P 500 plunged about 14% in the fourth quarter of 2018, causing the index to fall 6% over the year, according to FactSet data. The index then rebounded 29% in 2019, climbed 16% in 2020, and rose 25% through November 5 that year.
"With the S&P 500 continuing to hit new highs almost every day, it is clear that the markets are pricing in plenty of surprises for 2022," wrote Nicholas Colas, co-founder of DataTrek Research, in an email on Nov. 2. "What makes the current environment so treacherous is the fact that the equity markets have valued fundamentals higher not only for 2021, but also for 2019 and 2020."
The likelihood that the S&P 500 will achieve a return of more than 15% for three consecutive years is slim, according to DataTrek, at only 10%. "A fourth year of +15 percent for the S&P 500 is rare," wrote Colas.
Since 1928, the S&P 500 has only made 15% four times in three or more consecutive years, according to Colas, who associated those periods with "overarching" market events such as war spending, technological innovation and post-crisis recovery.
Colas referred to the four years from 1942 to 1945 during World War II, the four years from 1949 to 1952 amid the post-war economic boom and the Korean War, the dot-com bubble in the five years from 1995 to 1999, and the three-year period from 2012 until 2014, which followed the global financial crisis and the Greek debt crisis.
"Regardless of whether you are currently bullish or bearish on American large caps, there is no doubt what the markets are saying as they hit new highs: 2022 will be another year of positive surprises," he wrote in the note.
Meanwhile, some investors are expecting a strong holiday season.
"Our real-time vacation sales tracker continues to show that consumers are shopping at a similar pace to 2020, but higher than 2019," said economists at BofA Global Research in a November 4 report.
"I've already done most of my Christmas shopping," said Victoria Fernandez, chief marketing strategist at Crossmark Global Investments, in a telephone interview, "because I'm concerned about supply shortages." Historically, it's a strong seasonal effect, "she said about the Christmas spending in the fourth quarter. "I think consumer demand will continue to grow this quarter and that will support the economy."
In US economic data, investors will see the latest consumer price index inflation data this week, as well as a consumer sentiment barometer.
In the meantime, stocks are a little ahead of earnings, "warned Fernandez." We are not saying nothing to worry, but that it will be a pleasure to get in full by the middle of next year.
In a world of low interest rates and high inflation, investors have turned to stocks in search of return, Fernandez said.
Ren at Penn Mutual Asset Management says many people chase stock market returns for fear of missing out and to maintain spending power.
"Right now there is nothing but the stock market," said Ren. As long as the Fed doesn't have to hike rates to contain inflation, "I think we will stay in this highly valued world for a long time".
