Sunday, September 21, 2025 – 8:30 PM | 3-minute read
Stocks climbed to new record highs last week after the Federal Reserve announced its first rate cut of the year, sparking what some analysts are calling a short-lived “honeymoon rally.”
Confidence in looser financial conditions, combined with strong momentum from the artificial intelligence boom, has driven equities upward—challenging September’s typical reputation as a sluggish month for markets.
Bank of America strategist Michael Hartnett noted in a client report that if current market momentum is indeed a bubble, history suggests it may not be at its breaking point yet. His team’s analysis of more than a century of stock market manias shows that bubbles have historically generated average gains of about 244% from trough to peak. By comparison, the "Magnificent Seven" have rallied 223% since their March 2023 lows—indicating potential upside still remains.
Echoing that sentiment, Jeff Krumpelman, chief investment strategist at Mariner Wealth Advisors, said that AI-driven productivity growth and robust earnings outlooks support the case for higher valuations.
Krumpelman told Yahoo Finance that we’re still in the “very early stages” of artificial intelligence, highlighting how it’s opening up vast opportunities while boosting productivity, corporate earnings, and the overall strength of the labor market.
He acknowledged that the S&P 500 (^GSPC) is currently trading at about 23 times forward earnings — a level above historical averages — but argued that drawing direct comparisons to previous market cycles doesn’t capture the full picture.
He remarked, “Today’s S&P 500 looks very different from decades past. Back then, return on equity and profit margins were much lower, and the market wasn’t as heavily driven by communication services and technology growth stocks.”
Still, he warned against excessive exuberance: “What would concern me is a true ‘melt-up’—where investors go overboard celebrating Federal Reserve rate cuts, pushing the market to unsustainably higher levels. That would make me uneasy.”
That concern is echoed by other seasoned strategists.
Ed Yardeni, president of Yardeni Research, cautioned that looser monetary policy might spark an unsustainable surge in equities while leaving deeper structural challenges — such as the nation’s labor supply shortfall — unresolved. He warned that lowering rates in an economy that remains strong could stoke speculative fervor fueled by investor FOMO rather than sound fundamentals, a setup that often leads to painful market pullbacks.
Emily Roland, co-chief investment strategist at John Hancock Investment Management, characterized the backdrop as both unusually supportive and delicate.
“We’re in a honeymoon period again — the Fed’s rate cuts are being welcomed, but they’re not yet signaling deeper trouble like a weakening labor market,” she told Yahoo Finance on Thursday, adding that investors seem to have “selective hearing at the moment.”
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