The stock market has endured a difficult stretch these last few weeks, with the Nasdaq 100 suffering a sharp correction and selling pressure spreading across growth stocks and other economically sensitive areas.
But zooming out, the frustration has been building for months. Despite strong year-to-date returns, the major indexes have made relatively little sustained progress since early summer, as a growing list of concerns has weighed on investor sentiment.
Rising interest rates, persistent conflict in the Middle East, elevated oil prices, tighter Federal Reserve policy and renewed questions surrounding the sustainability of the AI boom have all contributed to an increasingly uncertain environment.
However, I believe the market may be approaching an important turning point.
For much of this bull market, I have argued that two powerful forces have been driving equities higher: the historic AI capital expenditure boom and persistent fiscal deficit spending.
AI infrastructure investment is generating extraordinary revenue and earnings growth across semiconductors, memory, networking, power generation and a rapidly expanding ecosystem of related industries. Meanwhile, substantial government deficit spending continues to support nominal economic growth and corporate revenues, even as it creates longer-term fiscal challenges.
Neither of these underlying forces have disappeared. Rather, their positive influence has recently been overshadowed by a series of bearish macroeconomic developments.
And that is what makes the current setup particularly interesting.
With valuations improving, corporate earnings remaining exceptionally strong and several potential catalysts approaching, I believe the recent correction could prove to be the foundation for a powerful rally into year-end and early 2027.
Here are five reasons why.
1) Stock Market Valuations Have Reset
One of the most encouraging developments has been the improvement in equity valuations.
While stock prices have struggled in recent months, corporate earnings and forward estimates have continued climbing. That combination has produced meaningful valuation compression, particularly across the leading sectors.
This is an important distinction. A market doesn't necessarily need to experience a major bear market to become more attractively valued. Extended periods of sideways price action can accomplish much the same thing, provided earnings continue growing. And that is largely what has happened.
The Nasdaq-100, for example, now trades around 20 times forward earnings, compared with its 10-year median of approximately 23 times. That represents a notable discount to its historical valuation, despite the index's substantial exposure to some of the world's fastest growing and most profitable companies.
Of course, not everything is cheap. Some AI infrastructure businesses still command substantial premiums, and elevated Treasury yields make those valuations more difficult to justify. But the broader opportunity has clearly improved.
Many high-quality companies are now trading at substantially more reasonable multiples than they were earlier this year, even as analysts have continued raising earnings expectations.
Should interest rates stabilize and investor sentiment improve, those companies could benefit from both continued earnings growth and renewed valuation expansion.
2) Corporate Earnings Are Booming and Could Broaden Significantly
Perhaps the strongest argument for the bull market is the remarkable resilience of corporate earnings.
According to the latest Zacks estimates, S&P 500 earnings are expected to increase +24.6% year over year in the third quarter, supported by +11.8% revenue growth. That would mark the eighth consecutive quarter of double-digit earnings growth.
Those are extraordinary numbers, particularly considering the challenging macroeconomic backdrop. But an even more interesting story is unfolding beneath the surface.
The Magnificent Seven are expected to deliver earnings growth of +20.3%, supported by +22.9% revenue growth. However, excluding those seven companies, earnings growth for the rest of the S&P 500 actually increases to +26.0%.
That is a notable development, challenging the widely held assumption that only a handful of mega-cap technology stocks are supporting the market.
Much of that strength is coming from the broader AI infrastructure ecosystem, particularly semiconductor and memory manufacturers, alongside the energy sector. Technology sector earnings are expected to grow +43.3% in Q3, while Energy sector profits are projected to surge +118.1%.
For perspective, an earlier Zacks analysis showed that excluding both Technology and Energy, third-quarter earnings growth for the remaining S&P 500 companies was expected to be just +7.4%.
The takeaway is that earnings growth remains exceptionally strong, but concentrated. And that concentration creates an important opportunity heading into 2027.
More . . .
------------------------------------------------------------------------------------------------------
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These portfolios have already closed 203 double and triple-digit gains this year. While not all our picks are winners, members saw recent gains of +415.1%, +735.7%, and even +2,027.7%.¹
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The next phase of this earnings cycle could feature substantially broader participation.
For the fourth quarter, S&P 500 earnings are projected to grow another +27.4%, supported by +12.3% revenue growth, with 15 of the 16 Zacks sectors expected to report positive earnings growth.
Looking further ahead, Zacks projects full-year S&P 500 earnings growth of +28.8% in 2026, followed by another +19.0% in 2027. Even excluding Technology, earnings are expected to increase +11.7% next year, while energy is expected to actually function as a drag on earnings next year.
More importantly, 15 of the 16 Zacks sectors are projected to grow earnings in 2027, with 11 expected to deliver double-digit gains.
The revisions trend is also encouraging. Since the beginning of July, analysts have raised their 2027 earnings estimates across 10 of the 16 Zacks sectors, with upward revisions extending beyond Technology into Finance, Industrials and other industries.
There is reason to believe that process could continue.
If energy prices retreat and interest rates stabilize, companies facing elevated transportation, financing and other operating costs could experience meaningful margin relief. That would support profitability across a much broader portion of the economy.
And importantly, this doesn't require the AI investment boom to end.
My preferred scenario is one in which AI infrastructure spending continues generating exceptional growth, while improving economic conditions allow more traditional industries to contribute meaningfully to the earnings expansion.
That combination of sustained AI investment and broadening corporate profitability could provide the foundation for a much healthier, more broadly supported bull market in 2027.
3) One of the Market's Most Bullish Seasonal Windows Is Approaching
The calendar is another reason I am becoming increasingly constructive.
Historically, the months leading up to midterm elections have been among the most challenging periods of the four-year presidential cycle for equity investors. Stocks have frequently experienced heightened volatility and meaningful corrections during this window, with the stretch from late summer through Election Day proving particularly difficult.
This year's market action has followed that historical pattern remarkably closely. Despite strong underlying corporate earnings, stocks have struggled to make sustained progress since early summer, with selling pressure intensifying as the November 3 midterm elections approach.
But what happens afterward is especially interesting.
Since 1950, the S&P 500 has risen in the 12 months following every midterm election, a perfect 19-for-19 record.
Historical calculations show a median gain of approximately +14.5% over those subsequent 12 months.
The shorter-term record is also encouraging. Research from Schaeffer's Investment Research found that the S&P 500 gained an average of approximately +2.7% between Election Day and year-end during midterm election years, with positive returns about two-thirds of the time.
And the year following a midterm election has historically been the strongest year of the four-year presidential cycle.
There are several possible explanations.
For one, the election removes a major source of uncertainty. Investors can begin assessing actual policy outcomes rather than speculating about potential changes in taxes, regulation and government spending.
Political gridlock can also be viewed favorably, particularly when it reduces the likelihood of disruptive legislative changes.
Of course, historical patterns are not guarantees, and seasonality alone cannot overcome deteriorating earnings or a significant macroeconomic shock.
Nevertheless, the consistency of post-midterm strength is difficult to ignore.
With the election now approaching, the market is entering a period that has historically been exceptionally favorable for equities.
4) Oil and Interest Rates Could Become Powerful Tailwinds
Of all the factors weighing on stocks recently, rising oil prices and interest rates have arguably been the most consequential.
The ongoing conflict involving Iran has introduced a substantial geopolitical risk premium into global energy markets, pushing crude oil above $100 per barrel.
Higher energy costs create multiple problems for the economy. They increase transportation and manufacturing expenses, squeeze household purchasing power and contribute directly to inflation.
Perhaps most importantly for equity investors, higher inflation has complicated the Federal Reserve's policy outlook and contributed to rising Treasury yields.
The 10-year Treasury yield has recently traded above 5%, a level that creates meaningful competition for equities and raises financing costs throughout the economy.
But the relationship works in both directions.
If geopolitical tensions begin easing and oil prices retreat, several of these headwinds could reverse simultaneously.
Lower energy prices would relieve inflationary pressure, potentially allowing interest rate expectations to moderate. Consumers would benefit from lower gasoline prices, while transportation, manufacturing and other energy-intensive businesses could enjoy improving profit margins.
That combination could prove particularly favorable for small-cap stocks, cyclical industries and other market segments that have struggled under the weight of rising borrowing costs.
There is also a possible political catalyst approaching.
With the midterm elections nearly complete, the political incentives surrounding the Middle East conflict could begin changing, potentially creating an opening for renewed diplomatic efforts.
I would not base an investment strategy on predicting a geopolitical resolution. The conflict could just as easily intensify, keeping oil and rates elevated.
However, markets are already reflecting a substantial degree of concern about inflation and higher borrowing costs.
Even a modest improvement in those conditions could be enough to generate a meaningful shift in investor sentiment.
And if the AI spending boom and fiscal support remain intact, the removal of these macroeconomic headwinds could allow the market's underlying bullish forces to reassert themselves.
5) A New Wave of AI IPOs Could Reignite Risk Appetite
Finally, one of the more interesting potential catalysts is the approaching wave of major artificial intelligence initial public offerings.
For several years, investors have been able to participate in the AI boom primarily through established technology companies and the businesses supplying the infrastructure behind the industry.
But that could soon change. Anthropic, the developer of Claude, is reportedly preparing for a potential public offering, with speculation pointing toward a possible debut following the midterm elections. Meanwhile, OpenAI is pursuing additional financing and could eventually become another major entrant into the public markets.
These companies represent some of the most closely watched businesses in the world, and their potential listings could become important events for investor sentiment.
One of the largest uncertainties hanging over the AI investment boom is the underlying economics of the companies developing frontier AI models. Investors have relatively little visibility into their revenues, profitability, operating costs and long-term capital requirements. That uncertainty has raised legitimate questions about whether the enormous sums being invested in AI infrastructure will ultimately generate sufficient returns.
Public listings could go a long way toward resolving those concerns.
Greater financial transparency would allow investors to better assess the underlying business models, including revenue growth, margins, customer demand and the economics of developing and operating increasingly sophisticated AI systems.
And while the results could certainly disappoint, many of the recent indications surrounding enterprise adoption, revenue growth and demand for AI services have been encouraging. There is a reasonable possibility that greater transparency could reveal businesses with substantially stronger economics than skeptics currently assume.
That would have implications far beyond the companies themselves.
If investors gain confidence that frontier AI developers can build sustainable, profitable businesses, it would help validate the enormous infrastructure investments being made throughout the industry. That could relieve a major source of uncertainty weighing on semiconductor manufacturers, data center operators, power providers and other AI beneficiaries.
Of course, the opposite outcome is also possible. Disclosures revealing persistent losses, deteriorating unit economics or unsustainable capital requirements could reinforce concerns about an AI investment bubble.
Large IPOs also introduce additional equity supply, potentially absorbing capital that might otherwise flow into existing stocks.
Nevertheless, historically, active and successful IPO markets have tended to accompany periods of strong investor confidence and healthy risk appetite.
If these landmark AI offerings are well received, and the financial disclosures support the increasingly optimistic outlook for AI adoption, they could provide a powerful catalyst for renewed enthusiasm across the entire investment theme.
What Could Go Wrong?
Despite these encouraging developments, there are several risks that deserve attention.
The most immediate is the possibility that oil prices and Treasury yields continue climbing, forcing the Federal Reserve to maintain an even more restrictive policy stance.
A further escalation in the Middle East could intensify those pressures and weigh heavily on economic activity.
The other major risk is a meaningful deterioration in AI infrastructure spending.
Much of the market's earnings growth remains tied to enormous capital expenditure commitments from hyperscalers and other technology companies. A material reduction in those spending plans, or evidence that financing conditions are beginning to constrain investment, would directly challenge my underlying bull market thesis.
Finally, earnings expectations are already high. Even strong results may not be enough if corporate guidance begins deteriorating.
These are meaningful concerns, and the market could certainly experience further volatility before a durable advance takes hold.
The Bull Market's Engines Are Still Running
The recent market correction has been uncomfortable, but I don't believe the fundamental drivers of the bull market have disappeared.
AI infrastructure investment continues to support exceptional corporate earnings growth, while substantial fiscal deficit spending remains an important source of economic demand.
At the same time, valuations have improved, the earnings outlook remains strong, and the market is approaching one of its most historically favorable seasonal windows.
A potential decline in oil prices, stabilization in interest rates and renewed enthusiasm surrounding major AI IPOs could provide additional catalysts.
Not all five developments need to play out perfectly.
In fact, if even a few of these headwinds begin reversing while the underlying earnings expansion continues, the market could find itself in a substantially more favorable position heading into 2027.
Rather than signaling the end of the bull market, the recent pullback may ultimately prove to be the setup for its next major advance.
The Best Way to Take Advantage of This Market
Today, I'm pleased to offer you full, 30-day, real-time access to every stock and ETF we recommend as part of our celebrated Zacks Ultimate arrangement.
Our expert-led recommendation services highlight the most promising stocks on the market, including the hottest AI firms, insider trades (the legal kind), home run moves, stocks under $10, earnings surprise stocks, and more.
The total cost is only $1, and there's no obligation to spend a cent more.
This includes the real-time buy and sell recommendations, along with expert market insights, from ALL of Zacks' private portfolio services.
While future success isn't guaranteed, Zacks Ultimate members have seen recent gains of +415.1%, +735.7%, and even +2,027.7%.¹
Free Bonus Report: You'll also receive our Ultimate Four Special Report which highlights our best 4 stocks to buy in Q4. These 4 stocks are judged by our experts to have the greatest upside this quarter and beyond — and we believe now is the perfect time to get in.
Don't wait. This opportunity ends at midnight, Sunday, October 25.
Gain Zacks Ultimate Access and Our Bonus Ultimate Four Special Report Right Now for Just $1 >>
Good Investing,
Ethan Feller
Zacks Stock Strategist
Ethan Feller manages the Zacks Home Run Investor and Stocks Under $10 portfolio services and has deep experience in statistically significant short-term trading strategies in stocks and futures. He invites you to take advantage of our unique $1 opportunity.
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.
View the Zacks #1 Rank List
Image: Bigstock
Positioned for a Rally: 5 Reasons Stocks Could Soar into Year-End
The stock market has endured a difficult stretch these last few weeks, with the Nasdaq 100 suffering a sharp correction and selling pressure spreading across growth stocks and other economically sensitive areas.
But zooming out, the frustration has been building for months. Despite strong year-to-date returns, the major indexes have made relatively little sustained progress since early summer, as a growing list of concerns has weighed on investor sentiment.
Rising interest rates, persistent conflict in the Middle East, elevated oil prices, tighter Federal Reserve policy and renewed questions surrounding the sustainability of the AI boom have all contributed to an increasingly uncertain environment.
However, I believe the market may be approaching an important turning point.
For much of this bull market, I have argued that two powerful forces have been driving equities higher: the historic AI capital expenditure boom and persistent fiscal deficit spending.
AI infrastructure investment is generating extraordinary revenue and earnings growth across semiconductors, memory, networking, power generation and a rapidly expanding ecosystem of related industries. Meanwhile, substantial government deficit spending continues to support nominal economic growth and corporate revenues, even as it creates longer-term fiscal challenges.
Neither of these underlying forces have disappeared. Rather, their positive influence has recently been overshadowed by a series of bearish macroeconomic developments.
And that is what makes the current setup particularly interesting.
With valuations improving, corporate earnings remaining exceptionally strong and several potential catalysts approaching, I believe the recent correction could prove to be the foundation for a powerful rally into year-end and early 2027.
Here are five reasons why.
1) Stock Market Valuations Have Reset
One of the most encouraging developments has been the improvement in equity valuations.
While stock prices have struggled in recent months, corporate earnings and forward estimates have continued climbing. That combination has produced meaningful valuation compression, particularly across the leading sectors.
This is an important distinction. A market doesn't necessarily need to experience a major bear market to become more attractively valued. Extended periods of sideways price action can accomplish much the same thing, provided earnings continue growing. And that is largely what has happened.
The Nasdaq-100, for example, now trades around 20 times forward earnings, compared with its 10-year median of approximately 23 times. That represents a notable discount to its historical valuation, despite the index's substantial exposure to some of the world's fastest growing and most profitable companies.
Of course, not everything is cheap. Some AI infrastructure businesses still command substantial premiums, and elevated Treasury yields make those valuations more difficult to justify. But the broader opportunity has clearly improved.
Many high-quality companies are now trading at substantially more reasonable multiples than they were earlier this year, even as analysts have continued raising earnings expectations.
Should interest rates stabilize and investor sentiment improve, those companies could benefit from both continued earnings growth and renewed valuation expansion.
2) Corporate Earnings Are Booming and Could Broaden Significantly
Perhaps the strongest argument for the bull market is the remarkable resilience of corporate earnings.
According to the latest Zacks estimates, S&P 500 earnings are expected to increase +24.6% year over year in the third quarter, supported by +11.8% revenue growth. That would mark the eighth consecutive quarter of double-digit earnings growth.
Those are extraordinary numbers, particularly considering the challenging macroeconomic backdrop. But an even more interesting story is unfolding beneath the surface.
The Magnificent Seven are expected to deliver earnings growth of +20.3%, supported by +22.9% revenue growth. However, excluding those seven companies, earnings growth for the rest of the S&P 500 actually increases to +26.0%.
That is a notable development, challenging the widely held assumption that only a handful of mega-cap technology stocks are supporting the market.
Much of that strength is coming from the broader AI infrastructure ecosystem, particularly semiconductor and memory manufacturers, alongside the energy sector. Technology sector earnings are expected to grow +43.3% in Q3, while Energy sector profits are projected to surge +118.1%.
For perspective, an earlier Zacks analysis showed that excluding both Technology and Energy, third-quarter earnings growth for the remaining S&P 500 companies was expected to be just +7.4%.
The takeaway is that earnings growth remains exceptionally strong, but concentrated. And that concentration creates an important opportunity heading into 2027.
More . . .
------------------------------------------------------------------------------------------------------
Care to See All Zacks Buys & Sells for $1?
Starting today, for one month, you are invited to see the real-time buys and sells from all our private portfolios for only $1. And you won't be obligated to spend another cent.
These portfolios have already closed 203 double and triple-digit gains this year. While not all our picks are winners, members saw recent gains of +415.1%, +735.7%, and even +2,027.7%.¹
Special opportunity ends at midnight Sunday, October 25.
Start Zacks Ultimate Access Now >>
------------------------------------------------------------------------------------------------------
The next phase of this earnings cycle could feature substantially broader participation.
For the fourth quarter, S&P 500 earnings are projected to grow another +27.4%, supported by +12.3% revenue growth, with 15 of the 16 Zacks sectors expected to report positive earnings growth.
Looking further ahead, Zacks projects full-year S&P 500 earnings growth of +28.8% in 2026, followed by another +19.0% in 2027. Even excluding Technology, earnings are expected to increase +11.7% next year, while energy is expected to actually function as a drag on earnings next year.
More importantly, 15 of the 16 Zacks sectors are projected to grow earnings in 2027, with 11 expected to deliver double-digit gains.
The revisions trend is also encouraging. Since the beginning of July, analysts have raised their 2027 earnings estimates across 10 of the 16 Zacks sectors, with upward revisions extending beyond Technology into Finance, Industrials and other industries.
There is reason to believe that process could continue.
If energy prices retreat and interest rates stabilize, companies facing elevated transportation, financing and other operating costs could experience meaningful margin relief. That would support profitability across a much broader portion of the economy.
And importantly, this doesn't require the AI investment boom to end.
My preferred scenario is one in which AI infrastructure spending continues generating exceptional growth, while improving economic conditions allow more traditional industries to contribute meaningfully to the earnings expansion.
That combination of sustained AI investment and broadening corporate profitability could provide the foundation for a much healthier, more broadly supported bull market in 2027.
3) One of the Market's Most Bullish Seasonal Windows Is Approaching
The calendar is another reason I am becoming increasingly constructive.
Historically, the months leading up to midterm elections have been among the most challenging periods of the four-year presidential cycle for equity investors. Stocks have frequently experienced heightened volatility and meaningful corrections during this window, with the stretch from late summer through Election Day proving particularly difficult.
This year's market action has followed that historical pattern remarkably closely. Despite strong underlying corporate earnings, stocks have struggled to make sustained progress since early summer, with selling pressure intensifying as the November 3 midterm elections approach.
But what happens afterward is especially interesting.
Since 1950, the S&P 500 has risen in the 12 months following every midterm election, a perfect 19-for-19 record.
Historical calculations show a median gain of approximately +14.5% over those subsequent 12 months.
The shorter-term record is also encouraging. Research from Schaeffer's Investment Research found that the S&P 500 gained an average of approximately +2.7% between Election Day and year-end during midterm election years, with positive returns about two-thirds of the time.
And the year following a midterm election has historically been the strongest year of the four-year presidential cycle.
There are several possible explanations.
For one, the election removes a major source of uncertainty. Investors can begin assessing actual policy outcomes rather than speculating about potential changes in taxes, regulation and government spending.
Political gridlock can also be viewed favorably, particularly when it reduces the likelihood of disruptive legislative changes.
Of course, historical patterns are not guarantees, and seasonality alone cannot overcome deteriorating earnings or a significant macroeconomic shock.
Nevertheless, the consistency of post-midterm strength is difficult to ignore.
With the election now approaching, the market is entering a period that has historically been exceptionally favorable for equities.
4) Oil and Interest Rates Could Become Powerful Tailwinds
Of all the factors weighing on stocks recently, rising oil prices and interest rates have arguably been the most consequential.
The ongoing conflict involving Iran has introduced a substantial geopolitical risk premium into global energy markets, pushing crude oil above $100 per barrel.
Higher energy costs create multiple problems for the economy. They increase transportation and manufacturing expenses, squeeze household purchasing power and contribute directly to inflation.
Perhaps most importantly for equity investors, higher inflation has complicated the Federal Reserve's policy outlook and contributed to rising Treasury yields.
The 10-year Treasury yield has recently traded above 5%, a level that creates meaningful competition for equities and raises financing costs throughout the economy.
But the relationship works in both directions.
If geopolitical tensions begin easing and oil prices retreat, several of these headwinds could reverse simultaneously.
Lower energy prices would relieve inflationary pressure, potentially allowing interest rate expectations to moderate. Consumers would benefit from lower gasoline prices, while transportation, manufacturing and other energy-intensive businesses could enjoy improving profit margins.
That combination could prove particularly favorable for small-cap stocks, cyclical industries and other market segments that have struggled under the weight of rising borrowing costs.
There is also a possible political catalyst approaching.
With the midterm elections nearly complete, the political incentives surrounding the Middle East conflict could begin changing, potentially creating an opening for renewed diplomatic efforts.
I would not base an investment strategy on predicting a geopolitical resolution. The conflict could just as easily intensify, keeping oil and rates elevated.
However, markets are already reflecting a substantial degree of concern about inflation and higher borrowing costs.
Even a modest improvement in those conditions could be enough to generate a meaningful shift in investor sentiment.
And if the AI spending boom and fiscal support remain intact, the removal of these macroeconomic headwinds could allow the market's underlying bullish forces to reassert themselves.
5) A New Wave of AI IPOs Could Reignite Risk Appetite
Finally, one of the more interesting potential catalysts is the approaching wave of major artificial intelligence initial public offerings.
For several years, investors have been able to participate in the AI boom primarily through established technology companies and the businesses supplying the infrastructure behind the industry.
But that could soon change. Anthropic, the developer of Claude, is reportedly preparing for a potential public offering, with speculation pointing toward a possible debut following the midterm elections. Meanwhile, OpenAI is pursuing additional financing and could eventually become another major entrant into the public markets.
These companies represent some of the most closely watched businesses in the world, and their potential listings could become important events for investor sentiment.
One of the largest uncertainties hanging over the AI investment boom is the underlying economics of the companies developing frontier AI models. Investors have relatively little visibility into their revenues, profitability, operating costs and long-term capital requirements. That uncertainty has raised legitimate questions about whether the enormous sums being invested in AI infrastructure will ultimately generate sufficient returns.
Public listings could go a long way toward resolving those concerns.
Greater financial transparency would allow investors to better assess the underlying business models, including revenue growth, margins, customer demand and the economics of developing and operating increasingly sophisticated AI systems.
And while the results could certainly disappoint, many of the recent indications surrounding enterprise adoption, revenue growth and demand for AI services have been encouraging. There is a reasonable possibility that greater transparency could reveal businesses with substantially stronger economics than skeptics currently assume.
That would have implications far beyond the companies themselves.
If investors gain confidence that frontier AI developers can build sustainable, profitable businesses, it would help validate the enormous infrastructure investments being made throughout the industry. That could relieve a major source of uncertainty weighing on semiconductor manufacturers, data center operators, power providers and other AI beneficiaries.
Of course, the opposite outcome is also possible. Disclosures revealing persistent losses, deteriorating unit economics or unsustainable capital requirements could reinforce concerns about an AI investment bubble.
Large IPOs also introduce additional equity supply, potentially absorbing capital that might otherwise flow into existing stocks.
Nevertheless, historically, active and successful IPO markets have tended to accompany periods of strong investor confidence and healthy risk appetite.
If these landmark AI offerings are well received, and the financial disclosures support the increasingly optimistic outlook for AI adoption, they could provide a powerful catalyst for renewed enthusiasm across the entire investment theme.
What Could Go Wrong?
Despite these encouraging developments, there are several risks that deserve attention.
The most immediate is the possibility that oil prices and Treasury yields continue climbing, forcing the Federal Reserve to maintain an even more restrictive policy stance.
A further escalation in the Middle East could intensify those pressures and weigh heavily on economic activity.
The other major risk is a meaningful deterioration in AI infrastructure spending.
Much of the market's earnings growth remains tied to enormous capital expenditure commitments from hyperscalers and other technology companies. A material reduction in those spending plans, or evidence that financing conditions are beginning to constrain investment, would directly challenge my underlying bull market thesis.
Finally, earnings expectations are already high. Even strong results may not be enough if corporate guidance begins deteriorating.
These are meaningful concerns, and the market could certainly experience further volatility before a durable advance takes hold.
The Bull Market's Engines Are Still Running
The recent market correction has been uncomfortable, but I don't believe the fundamental drivers of the bull market have disappeared.
AI infrastructure investment continues to support exceptional corporate earnings growth, while substantial fiscal deficit spending remains an important source of economic demand.
At the same time, valuations have improved, the earnings outlook remains strong, and the market is approaching one of its most historically favorable seasonal windows.
A potential decline in oil prices, stabilization in interest rates and renewed enthusiasm surrounding major AI IPOs could provide additional catalysts.
Not all five developments need to play out perfectly.
In fact, if even a few of these headwinds begin reversing while the underlying earnings expansion continues, the market could find itself in a substantially more favorable position heading into 2027.
Rather than signaling the end of the bull market, the recent pullback may ultimately prove to be the setup for its next major advance.
The Best Way to Take Advantage of This Market
Today, I'm pleased to offer you full, 30-day, real-time access to every stock and ETF we recommend as part of our celebrated Zacks Ultimate arrangement.
Our expert-led recommendation services highlight the most promising stocks on the market, including the hottest AI firms, insider trades (the legal kind), home run moves, stocks under $10, earnings surprise stocks, and more.
The total cost is only $1, and there's no obligation to spend a cent more.
This includes the real-time buy and sell recommendations, along with expert market insights, from ALL of Zacks' private portfolio services.
While future success isn't guaranteed, Zacks Ultimate members have seen recent gains of +415.1%, +735.7%, and even +2,027.7%.¹
Free Bonus Report: You'll also receive our Ultimate Four Special Report which highlights our best 4 stocks to buy in Q4. These 4 stocks are judged by our experts to have the greatest upside this quarter and beyond — and we believe now is the perfect time to get in.
Don't wait. This opportunity ends at midnight, Sunday, October 25.
Gain Zacks Ultimate Access and Our Bonus Ultimate Four Special Report Right Now for Just $1 >>
Good Investing,
Ethan Feller
Zacks Stock Strategist
Ethan Feller manages the Zacks Home Run Investor and Stocks Under $10 portfolio services and has deep experience in statistically significant short-term trading strategies in stocks and futures. He invites you to take advantage of our unique $1 opportunity.
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.