'This isn't your grandfather's S&P 500': Wall Street strategists say stocks could keep rising from records
Stocks surged to fresh record highs this past week as the Federal Reserve delivered its first rate cut of the year, fueling what some strategists describe as a short-term "honeymoon rally."
Optimism around easier financial conditions and the artificial intelligence boom has powered equities higher, defying September's reputation as a weak month for stocks.
Bank of America strategist Michael Hartnett said in a note to clients that if this is a bubble, it may not be ready to burst. His team studied more than a century of equity manias and found that past bubbles typically delivered average gains of 244% from trough to peak. By that measure, the "Magnificent Seven," up 223% since their March 2023 lows, may still have room to climb.
That view was reinforced by Jeff Krumpelman, chief investment strategist at Mariner Wealth Advisors, who argued that AI-driven productivity gains and strong earnings prospects justify higher multiples.
"We're in the very early innings [of AI]," Krumpelman told Yahoo Finance. "It's creating so many opportunities and is also driving productivity growth for general earnings and the health of our labor market overall."
Krumpelman noted that the S&P 500's (^GSPC) valuation, roughly 23 times forward earnings, is high by historical standards, but he argued that comparisons to past cycles don't tell the full story.
"This isn't your grandfather's S&P 500," he said. "Return on equity and profit margins were far lower in those times when we weren't so [oriented] in those communication services and technology growth names."
Still, he cautioned against overheating: "What would worry me is if we got a real 'melt-up' where folks kind of go 'gaga' over Federal Reserve rate cuts, and it carries us to even higher levels. That would make me nervous."
That unease is shared by other market veterans.
Ed Yardeni, president of Yardeni Research, recently warned that easier monetary policy could trigger a destabilizing rally in stocks without addressing structural issues like America's labor supply shortage. He argued that cutting rates into a still-healthy economy risks fueling speculative excess driven by investor FOMO rather than fundamentals — the kind of run-up that often ends in sharp corrections.
Emily Roland, co-chief investment strategist at John Hancock Investment Management, described the current environment as unusually favorable but fragile.
"It's really back to the honeymoon phase with these Fed cuts coming through but not being more sinister to reflect a really deteriorating labor market," she told Yahoo Finance on Thursday, noting the market has "selective hearing right now."
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