What stock market pessimists may be missing

I have growing anecdotal evidence that some investors think the market advance is too good to be true. That’s largely based on conversations with friends and family. But it really struck me when several people felt the need to show me that a prominent financial TV host warned that one day we’ll have a crash.¹ That’s hardly news. All cycles end. That same pessimistic host also acknowledged that we don’t know when.

A quick scroll through my business-related social media feed reinforces the point. The usual pessimists are out in force, arguing that an inflation spiral is here, rates will keep rising, and the US debt story is finally unraveling. The long-awaited moment for the permabear has arrived. Or has it?

Sometimes facts get in the way

Compounding the skepticism is the nearly 200% two-month rise in the stock of a prominent memory-chip company,² helping to drive an 18.5% gain in the S&P 500 Index over the same period.³ To some, it feels unsustainable. Never mind that the company is only trading at 10x forward earnings.⁴ Compare that to the 18 prior periods when the S&P 500 rose by 18.5% or more over a two-month span. Returns were positive over the following six months in 16 of those instances, with an average gain of 10.6%.⁵ Sometimes facts get in the way of the naysayers’ good story.

Easing macro pressures

The skeptics will be right eventually. They usually are at some point. The issue is timing, and I think it’s likely not now. What makes the current pessimism particularly puzzling is that it’s happening at a moment when key macro pressures appear to be easing. Oil prices, interest rates, and inflation expectations have all shown signs of peaking.⁶ Yes, the most recent 3.3% core Personal Consumption Expenditures (PCE) reading moved in the wrong direction,⁷ but markets were already aware of that. We’ve also already seen the Federal Reserve (Fed) rate cuts priced out with little disruption.⁸

More importantly, the inflation breakeven has been drifting lower.⁹ Markets appear increasingly comfortable with the idea that inflation isn’t reaccelerating in a meaningful way. Geopolitical uncertainty remains. We don’t know the resolution of the Iran war or the path for the Strait of Hormuz. But markets tend to discount outcomes well before they’re realized, and there’s a growing belief that these risks will eventually stabilize.

So, what are the naysayers missing?

Earnings tell a strong story

First, earnings. US corporate earnings grew by 28% in the first quarter, well above the mid-single-digit expectations.¹⁰ Prices haven’t climbed at the same pace, meaning valuations have fallen.¹¹

Second, the discount rate. Markets have already adjusted to a less accommodative Fed path. Inflation expectations have generally been moving lower in recent days,¹² and it’s difficult to see the Fed raising rates in this environment.

Strong earnings growth alongside a Fed that’s on hold is a constructive combination in my view. If oil prices and interest rates continue to move lower together, it could also support a broadening in market leadership.

The pessimist often sounds smart. The narrative is compelling. Yes, this cycle will end. It always does. But it typically doesn’t end with credit spreads tightening¹³ and inflation expectations falling.¹⁴ The permabears will eventually have their moment and likely remind everyone that they were right. But when it arrives, markets may be higher than they have been today.

Important information

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All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The ADP Employment Report measures nonfarm private payrolls. It’s published monthly in collaboration with Moody’s Analytics.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

The Consumer Price Index (CPI) measures the change in consumer prices and is a commonly cited measure.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

A discount measures how much less one stock (or index) is trading compared with another stock (or index).

Earnings per share (EPS) refers to a company’s total earnings divided by the number of outstanding shares.

The federal funds rate is the rate at which banks lend balances to each other overnight.

Forward earnings per share is a variant of earnings per share and is calculated using a company’s projected earnings over the next 12 months divided by the number of outstanding shares.

A flash estimate is an early estimate for an economic data point.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified period of time.

Implied futures rates are the specific interest rates that financial markets expect, or imply, will occur in the future, calculated from the prices of interest rate futures and forward contracts.

Inflation is the rate at which the general price level for goods and services is increasing.

The ISM Manufacturing Index is based on Institute of Supply Management surveys of manufacturing firms in the US and monitors employment, production, inventories, new orders, and supplier deliveries.

A market cycle is a trend or pattern that may exist in a given market environment, allowing some securities or asset classes to outperform others.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

Personal consumption expenditures (PCE), or the PCE Index, measures price changes in consumer goods and services. Expenditures included in the index are actual US household expenditures. Core PCE excludes food and energy prices.

Purchasing Managers’ Indexes (PMI) are based on monthly surveys of companies worldwide and gauge business conditions within the manufacturing and services sectors.

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

A spread in finance is the difference between two related values, such as prices, rates, or yields.

West Texas Intermediate (WTI) is a type of light, sweet crude oil that comes from the US.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.

The opinions referenced above are those of the author as of May 29, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.