Stocks have made impressive gains over the last few months and are currently at or near all-time record levels.
Many in the market hope that the worst is behind us and that the rebound from the April bottom is for real and reflective of the favorable fundamental backdrop.
Tariffs drove the market sell-off, with the announced levies proving much larger than many had expected. But the subsequent launch of bilateral trade negotiations and the announcement of interim trade deals helped investors put the tariff issue behind them.
The prevailing consensus after the April tariff announcements is that, although many tariff-related matters remain outstanding, we now have a clearer understanding of the current situation.
A constructive view of the economy is that, while tariffs-induced uncertainty will likely affect near-term growth, the U.S. economy's fundamentals remain rock-solid. This view is also optimistic about the Trump administration's non-trade policy agenda, including taxes and regulatory reform. On top of all this is the ongoing AI-centric spending boom, largely independent of fiscal and monetary policy.
Market bears see this market optimism as without a fundamental basis. This line of thinking sees the tariff-induced uncertainty severe enough to push the economy close to a recessionary growth level.
Market bears doubt that the upcoming Fed easing will boost growth, expecting sluggish expansion even as inflation remains high. Worries about macroeconomic fiscal imbalances and stock market valuations also surface in the bearish view of the market.
The interplay of these competing views will determine how the market performs in the coming months and quarters. To that end, let's examine the landscape of bullish and bearish arguments to help you make up your own mind.
Let's talk about the Bull case first.
The Economy's Strong Foundation: The U.S. economy has literally been the envy of the world over the last few years, and those fundamentals are still intact despite continuing worries about their durability. It is this inherent resilience that allowed the U.S. economy to continue growing in the face of extraordinary Fed tightening over the last couple of years and is expected to be at play in the current tariff-centric policy environment.
Growth is expected to decelerate amid uncertainty over the tariff issue. We see this in consensus GDP growth expectations for this year, which are notably below the +2.8% growth pace in 2024 and +2.9% in 2023. These expectations show that the economy entered the current period of policy uncertainty in excellent shape.
We will not see the Q3 GDP report until after the government shutdown is behind us (October 30th was the scheduled date), but the expectation is another +3%-plus growth reading. The ongoing shutdown will weigh on Q4 growth, but history suggests the negative impact mostly reverses in the following quarter.
A stable consumer and business spending backdrop, underpinned by a robust labor market, ensures that growth remains positive, albeit at a lower trajectory. Tied to all this is the secular boom in AI-centric spending, expected to remain in place for at least the next two years before decelerating.
This is beneficial to the central bank's fight against inflation, as moderating economic growth pushes inflation readings toward the Fed's 2% target. The Fed’s latest policy decision was no surprise to anyone in the market, and they remain on track to cut rates in the subsequent few meetings as well.
All in all, the strong pillars of the U.S. economic foundation run contrary to the signs of trouble typically seen ahead.
The Fed's Easing Cycle: The government shutdown has come on top of the Trump administration's trade agenda, adding uncertainty to market inflation and Fed expectations. The absence of critical economic data due to the shutdown notwithstanding, the bulls see the inflation issue as heading toward a resolution satisfactory to the central bank, allowing the Fed to continue easing policy.
This view doesn't see tariffs as inherently inflationary, but acknowledges that emerging signs of labor-market softness are likely a result of tariff-induced moderation in economic growth.
The Fed’s decision to lower interest rates at the latest meeting was in line with market expectations, with a majority of market participants expecting the December meeting to bring in another rate cut announcement.
Market bulls expect the Fed to stay on an easing path, with the first two to three meetings of the New Year likely to produce consistent quarter-point rate cuts. This will allow the central bank to get ahead of any threats to the labor market, the other part of the Fed’s dual mandate.
Valuation & Earnings: Tied to the economic and interest rate outlook is the question of stock market valuation that still looks reasonable given the expected interest rate trajectory.
The S&P 500 index is currently trading at 23.5X next year’s earnings estimates, up from 18.7X at the April 2025 bottom and 15.4X at the end of September 2022. This is close to the 10-year high multiple for the market, which is feeding the ‘AI bubble’ narrative in parts of the market. We should keep in mind that the index peaked at 26X at year-end 1999 in the Tech bubble.
The appropriateness or otherwise of valuation multiples has to be seen in the context of the interest rate outlook. Valuation multiples typically expand when the Fed eases policy, particularly when the catalyst for the easing is confidence about inflation rather than growth fears.
Earnings outlook is a key part of the valuation discussion. Contrary to the earlier doom-and-gloom fears, the ongoing 2025 Q3 earnings season is showing a steadily improving earnings outlook for the coming periods. You can clearly see this in earnings expectations for 2025 Q4 and beyond.
What we are seeing this earnings season is that while companies in several industries lack adequate visibility into their businesses, many others continue to drive sales and earnings growth even in this environment. We are seeing many of these leaders from a variety of sectors, including Finance and Technology, deliver strong quarterly results and describe trends in their businesses in reassuring terms despite tariff uncertainty.
Current consensus expectations for this year and next reflect broad-based, vigorous growth, not driven by one or two sectors. While estimates had come down sharply earlier this year, the trend has totally shifted now, with estimates broadly reflecting a stable-to-positive trend line.
In the absence of a nasty economic downturn, the earnings picture can actually serve as a tailwind for the stock market amid easing Fed policy.
Continue . . .
------------------------------------------------------------------------------------------------------
5 Stocks Set to Double: Sunday Deadline
There's still time to get in on our just-released 5 Stocks Set to Double Special Report. Each pick is the single favorite of a Zacks expert with the best chance to crush the market and gain +100% and more in the months ahead:
Stock #1: The AI Orchestration Pioneer Ready to Explode
Stock #2: The Hidden Infrastructure Play Powering AI's Energy Revolution
Stock #3: Wellness Disruptor in Beverage Space Reclaims Its Crown
Stock #4: The Gold Mining Titan Cashing In on Historic Prices
Stock #5: Little-Known Biotech Company Trading at Bargain Prices
We can’t guarantee future performance, but previous editions have racked up gains of +116%, +171%, and even +209%.¹
Deadline to download the new report is midnight Sunday, November 2.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Let's see what the Bears have to say in response.
The Market's Fed Exuberance: The Fed did the expected at its latest policy meeting, despite being forced to ‘fly blind’ in the absence of economic data due to the government shutdown.
The expectation is for another rate cut in December, with many in the market hoping for continued rate cuts in the first few meetings in 2026, provided incoming economic data over the coming weeks remains supportive.
The view that tariffs cause only a one-time bump in inflation is plausible, but far from proven at this stage, particularly since the full tariff impact has yet to seep through to the economy.
An accelerated easing cycle along the lines outlined here to forestall softness in the labor market risks entrenching inflation expectations at a level that is materially above the Fed’s target. Inflation expectations become entrenched at elevated levels when households and businesses expect prices to remain high, potentially limiting the Fed’s ability to fight inflation.
Tied to the first risk is the prospect that the economy's true health may be far more fragile than recent GDP reading suggests. Low-income households have been struggling for a while, but anecdotal evidence from earnings calls suggests that even better-off consumers are getting more cautious in their spending plans. On top of this is the diminished outlook for business spending beyond the AI space, at least in the near term, due to policy uncertainty.
In the worst-case scenario, stalled progress on the inflation front may prevent the Fed from easing policy even as the economy continues to weaken, leading to the so-called 'stagflation' scenario. But even if that isn't the case and the Fed continues to ease in December and the subsequent meetings, the decelerating momentum in the economy may be hard to stop by then.
The Valuation Reality Check: Given the bears' view that the prudent course for the Fed is to be in no hurry to start easing policy in the absence of any economic issues, they see no fundamental reason for valuation multiples to expand from current record levels.
Higher-for-longer interest rates should have a direct impact on the prices of all asset classes, stocks included. Everything else constant, investors will use a higher discount rate, a function of interest rates, to value the future cash flows of the companies they want to invest in.
This means lower stock prices in a higher-interest-rate environment.
The Earnings Growth Question: Current consensus earnings estimates show +9.7% growth this year and +12.7% growth in 2026, following +10.7% in 2024.
Market bears see these earnings growth expectations as inconsistent with an economy facing a significant tariff increase. The full extent of the emerging tariff regime has yet to take effect, but the aggregate effective tariff rate is already more than five times higher than it was for the last many decades. It is hard to envision that this tariff jump will have no impact on inflation, economic growth, or corporate earnings.
Notwithstanding the tough going in the manufacturing sector and the growth implications of still-elevated treasury yields despite Fed easing, earnings expectations for this year and next will need to come down significantly to align with economic reality.
Where Do I Stand?
While I acknowledge that the pace of Fed easing beyond the December meeting may be slower than many in the market expect, I am skeptical of the higher-for-longer Fed policy view and see this scenario as a low-probability event.
The current Fed Funds rate level is still almost twice what central bank officials and economists see as the 'neutral' policy rate. At the 'neutral' policy rate, Fed policy is neither 'stimulating' nor 'restricting' economic activity.
Even if further progress on the inflation front is much slower than the Fed and the market are currently projecting, the central bank has plenty of cushion in its policy arsenal to start easing without adversely affecting its inflation fight. This doesn't mean that the Fed should put rate cuts on autopilot, but it does suggest that they don't need to wait for an extended period to consolidate the inflation gains.
Regular readers of my earnings commentary know that the earnings picture remains resilient, with the latest development being upward revisions to estimates for the current and upcoming periods.
The overall policy thrust of the Trump administration is expected to be pro-growth and pro-market. Still, it is nevertheless reasonable to expect some period of market tentativeness as we sort through the bilateral trade negotiations. We remain confident that investors will soon come around to our view of inflation, earnings, and the much more positive times ahead. The market’s rebound from the April lows reflects this view of the economy and market.
So, What Do You Do Right Now?
You can take advantage by building positions in great stocks with solid fundamentals and clear growth prospects.
That's why I'm inviting you to download our just-released Special Report, 5 Stocks Set to Double. Each stock was handpicked by a Zacks expert as their personal favorite to have the best chance of gaining +100% and more in the months ahead:
Stock #1: The AI Orchestration Pioneer Ready to Explode
Stock #2: The Hidden Infrastructure Play Powering AI's Energy Revolution
Stock #3: Wellness Disruptor in Beverage Space Reclaims Its Crown
Stock #4: The Gold Mining Titan Cashing In on Historic Prices
Stock #5: Little-Known Biotech Company Trading at Bargain Prices
While we can’t guarantee future performance, previous editions of this report have racked up gains of +116%, +171%, and even +209%.¹
Your total cost to see all five new tickers is only $1, and there's no obligation to spend a cent more.
Plus, that same dollar gives you full 30-day access to Zacks Investor Collection. This includes real-time buy and sell recommendations and expert market insights from all of Zacks' private long-term portfolio services.
Please note, your opportunity to download our 5 Stocks Set to Double Special Report for $1 ends at midnight on Sunday, November 2.
See our 5 Stocks Set to Double now for $1 >>
Sheraz
Sheraz Mian serves as the Director of Research and manages the entire research department. He also manages the Zacks Focus List and Zacks Top 10 Stocks portfolios. He invites you to access Zacks Investor Collection.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.
Image: Bigstock
How to Make the Most of Today's Market
Stocks have made impressive gains over the last few months and are currently at or near all-time record levels.
Many in the market hope that the worst is behind us and that the rebound from the April bottom is for real and reflective of the favorable fundamental backdrop.
Tariffs drove the market sell-off, with the announced levies proving much larger than many had expected. But the subsequent launch of bilateral trade negotiations and the announcement of interim trade deals helped investors put the tariff issue behind them.
The prevailing consensus after the April tariff announcements is that, although many tariff-related matters remain outstanding, we now have a clearer understanding of the current situation.
A constructive view of the economy is that, while tariffs-induced uncertainty will likely affect near-term growth, the U.S. economy's fundamentals remain rock-solid. This view is also optimistic about the Trump administration's non-trade policy agenda, including taxes and regulatory reform. On top of all this is the ongoing AI-centric spending boom, largely independent of fiscal and monetary policy.
Market bears see this market optimism as without a fundamental basis. This line of thinking sees the tariff-induced uncertainty severe enough to push the economy close to a recessionary growth level.
Market bears doubt that the upcoming Fed easing will boost growth, expecting sluggish expansion even as inflation remains high. Worries about macroeconomic fiscal imbalances and stock market valuations also surface in the bearish view of the market.
The interplay of these competing views will determine how the market performs in the coming months and quarters. To that end, let's examine the landscape of bullish and bearish arguments to help you make up your own mind.
Let's talk about the Bull case first.
The Economy's Strong Foundation: The U.S. economy has literally been the envy of the world over the last few years, and those fundamentals are still intact despite continuing worries about their durability. It is this inherent resilience that allowed the U.S. economy to continue growing in the face of extraordinary Fed tightening over the last couple of years and is expected to be at play in the current tariff-centric policy environment.
Growth is expected to decelerate amid uncertainty over the tariff issue. We see this in consensus GDP growth expectations for this year, which are notably below the +2.8% growth pace in 2024 and +2.9% in 2023. These expectations show that the economy entered the current period of policy uncertainty in excellent shape.
We will not see the Q3 GDP report until after the government shutdown is behind us (October 30th was the scheduled date), but the expectation is another +3%-plus growth reading. The ongoing shutdown will weigh on Q4 growth, but history suggests the negative impact mostly reverses in the following quarter.
A stable consumer and business spending backdrop, underpinned by a robust labor market, ensures that growth remains positive, albeit at a lower trajectory. Tied to all this is the secular boom in AI-centric spending, expected to remain in place for at least the next two years before decelerating.
This is beneficial to the central bank's fight against inflation, as moderating economic growth pushes inflation readings toward the Fed's 2% target. The Fed’s latest policy decision was no surprise to anyone in the market, and they remain on track to cut rates in the subsequent few meetings as well.
All in all, the strong pillars of the U.S. economic foundation run contrary to the signs of trouble typically seen ahead.
The Fed's Easing Cycle: The government shutdown has come on top of the Trump administration's trade agenda, adding uncertainty to market inflation and Fed expectations. The absence of critical economic data due to the shutdown notwithstanding, the bulls see the inflation issue as heading toward a resolution satisfactory to the central bank, allowing the Fed to continue easing policy.
This view doesn't see tariffs as inherently inflationary, but acknowledges that emerging signs of labor-market softness are likely a result of tariff-induced moderation in economic growth.
The Fed’s decision to lower interest rates at the latest meeting was in line with market expectations, with a majority of market participants expecting the December meeting to bring in another rate cut announcement.
Market bulls expect the Fed to stay on an easing path, with the first two to three meetings of the New Year likely to produce consistent quarter-point rate cuts. This will allow the central bank to get ahead of any threats to the labor market, the other part of the Fed’s dual mandate.
Valuation & Earnings: Tied to the economic and interest rate outlook is the question of stock market valuation that still looks reasonable given the expected interest rate trajectory.
The S&P 500 index is currently trading at 23.5X next year’s earnings estimates, up from 18.7X at the April 2025 bottom and 15.4X at the end of September 2022. This is close to the 10-year high multiple for the market, which is feeding the ‘AI bubble’ narrative in parts of the market. We should keep in mind that the index peaked at 26X at year-end 1999 in the Tech bubble.
The appropriateness or otherwise of valuation multiples has to be seen in the context of the interest rate outlook. Valuation multiples typically expand when the Fed eases policy, particularly when the catalyst for the easing is confidence about inflation rather than growth fears.
Earnings outlook is a key part of the valuation discussion. Contrary to the earlier doom-and-gloom fears, the ongoing 2025 Q3 earnings season is showing a steadily improving earnings outlook for the coming periods. You can clearly see this in earnings expectations for 2025 Q4 and beyond.
What we are seeing this earnings season is that while companies in several industries lack adequate visibility into their businesses, many others continue to drive sales and earnings growth even in this environment. We are seeing many of these leaders from a variety of sectors, including Finance and Technology, deliver strong quarterly results and describe trends in their businesses in reassuring terms despite tariff uncertainty.
Current consensus expectations for this year and next reflect broad-based, vigorous growth, not driven by one or two sectors. While estimates had come down sharply earlier this year, the trend has totally shifted now, with estimates broadly reflecting a stable-to-positive trend line.
In the absence of a nasty economic downturn, the earnings picture can actually serve as a tailwind for the stock market amid easing Fed policy.
Continue . . .
------------------------------------------------------------------------------------------------------
5 Stocks Set to Double: Sunday Deadline
There's still time to get in on our just-released 5 Stocks Set to Double Special Report. Each pick is the single favorite of a Zacks expert with the best chance to crush the market and gain +100% and more in the months ahead:
Stock #1: The AI Orchestration Pioneer Ready to Explode
Stock #2: The Hidden Infrastructure Play Powering AI's Energy Revolution
Stock #3: Wellness Disruptor in Beverage Space Reclaims Its Crown
Stock #4: The Gold Mining Titan Cashing In on Historic Prices
Stock #5: Little-Known Biotech Company Trading at Bargain Prices
We can’t guarantee future performance, but previous editions have racked up gains of +116%, +171%, and even +209%.¹
Deadline to download the new report is midnight Sunday, November 2.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Let's see what the Bears have to say in response.
The Market's Fed Exuberance: The Fed did the expected at its latest policy meeting, despite being forced to ‘fly blind’ in the absence of economic data due to the government shutdown.
The expectation is for another rate cut in December, with many in the market hoping for continued rate cuts in the first few meetings in 2026, provided incoming economic data over the coming weeks remains supportive.
The view that tariffs cause only a one-time bump in inflation is plausible, but far from proven at this stage, particularly since the full tariff impact has yet to seep through to the economy.
An accelerated easing cycle along the lines outlined here to forestall softness in the labor market risks entrenching inflation expectations at a level that is materially above the Fed’s target. Inflation expectations become entrenched at elevated levels when households and businesses expect prices to remain high, potentially limiting the Fed’s ability to fight inflation.
Tied to the first risk is the prospect that the economy's true health may be far more fragile than recent GDP reading suggests. Low-income households have been struggling for a while, but anecdotal evidence from earnings calls suggests that even better-off consumers are getting more cautious in their spending plans. On top of this is the diminished outlook for business spending beyond the AI space, at least in the near term, due to policy uncertainty.
In the worst-case scenario, stalled progress on the inflation front may prevent the Fed from easing policy even as the economy continues to weaken, leading to the so-called 'stagflation' scenario. But even if that isn't the case and the Fed continues to ease in December and the subsequent meetings, the decelerating momentum in the economy may be hard to stop by then.
The Valuation Reality Check: Given the bears' view that the prudent course for the Fed is to be in no hurry to start easing policy in the absence of any economic issues, they see no fundamental reason for valuation multiples to expand from current record levels.
Higher-for-longer interest rates should have a direct impact on the prices of all asset classes, stocks included. Everything else constant, investors will use a higher discount rate, a function of interest rates, to value the future cash flows of the companies they want to invest in.
This means lower stock prices in a higher-interest-rate environment.
The Earnings Growth Question: Current consensus earnings estimates show +9.7% growth this year and +12.7% growth in 2026, following +10.7% in 2024.
Market bears see these earnings growth expectations as inconsistent with an economy facing a significant tariff increase. The full extent of the emerging tariff regime has yet to take effect, but the aggregate effective tariff rate is already more than five times higher than it was for the last many decades. It is hard to envision that this tariff jump will have no impact on inflation, economic growth, or corporate earnings.
Notwithstanding the tough going in the manufacturing sector and the growth implications of still-elevated treasury yields despite Fed easing, earnings expectations for this year and next will need to come down significantly to align with economic reality.
Where Do I Stand?
While I acknowledge that the pace of Fed easing beyond the December meeting may be slower than many in the market expect, I am skeptical of the higher-for-longer Fed policy view and see this scenario as a low-probability event.
The current Fed Funds rate level is still almost twice what central bank officials and economists see as the 'neutral' policy rate. At the 'neutral' policy rate, Fed policy is neither 'stimulating' nor 'restricting' economic activity.
Even if further progress on the inflation front is much slower than the Fed and the market are currently projecting, the central bank has plenty of cushion in its policy arsenal to start easing without adversely affecting its inflation fight. This doesn't mean that the Fed should put rate cuts on autopilot, but it does suggest that they don't need to wait for an extended period to consolidate the inflation gains.
Regular readers of my earnings commentary know that the earnings picture remains resilient, with the latest development being upward revisions to estimates for the current and upcoming periods.
The overall policy thrust of the Trump administration is expected to be pro-growth and pro-market. Still, it is nevertheless reasonable to expect some period of market tentativeness as we sort through the bilateral trade negotiations. We remain confident that investors will soon come around to our view of inflation, earnings, and the much more positive times ahead. The market’s rebound from the April lows reflects this view of the economy and market.
So, What Do You Do Right Now?
You can take advantage by building positions in great stocks with solid fundamentals and clear growth prospects.
That's why I'm inviting you to download our just-released Special Report, 5 Stocks Set to Double. Each stock was handpicked by a Zacks expert as their personal favorite to have the best chance of gaining +100% and more in the months ahead:
Stock #1: The AI Orchestration Pioneer Ready to Explode
Stock #2: The Hidden Infrastructure Play Powering AI's Energy Revolution
Stock #3: Wellness Disruptor in Beverage Space Reclaims Its Crown
Stock #4: The Gold Mining Titan Cashing In on Historic Prices
Stock #5: Little-Known Biotech Company Trading at Bargain Prices
While we can’t guarantee future performance, previous editions of this report have racked up gains of +116%, +171%, and even +209%.¹
Your total cost to see all five new tickers is only $1, and there's no obligation to spend a cent more.
Plus, that same dollar gives you full 30-day access to Zacks Investor Collection. This includes real-time buy and sell recommendations and expert market insights from all of Zacks' private long-term portfolio services.
Please note, your opportunity to download our 5 Stocks Set to Double Special Report for $1 ends at midnight on Sunday, November 2.
See our 5 Stocks Set to Double now for $1 >>
Sheraz
Sheraz Mian serves as the Director of Research and manages the entire research department. He also manages the Zacks Focus List and Zacks Top 10 Stocks portfolios. He invites you to access Zacks Investor Collection.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.