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Stocks’ Latest Record Comes With Few Signs of October Euphoria.

stock :: 2025-12-12 :: source - bloomberg

By Natalia Kniazhevich

(Bloomberg) — The S&P 500 (^GSPC) closed at an all-time high. That’s not unusual in 2025, though it’s been six weeks since the last one. But the setup sure looks different on Dec. 12 than in late October.

For one, the October high came amid a bout of investor euphoria, driven by a strong earnings season and excitement about the promise of artificial intelligence. That headiness is nowhere to be found this time, a positive sign for bulls hoping for a yearend rally.

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A sentiment gauge compiled by Ned Davis Research, which tracks 20 indicators including volatility, investor positioning and institutional investor surveys, is sitting below 62.5, the bottom of a range that’s been associated with extreme optimism.

Since the S&P 500 clocked its previous record in late October, investors have targeted sectors beyond Big Tech, partly because the AI tide is lifting more boats (utilities, industrial firms), but mainly because the Federal Reserve signaled it would reduce rates — as it did on Wednesday — at the same time economists and strategists expect the American economy to surge in the new year, driving profits higher. Talk of an AI bubble has quickly given way to optimism about US growth.

“Considering that US companies keep delivering strong earnings results and the US economy proved to be resilient, sentiment nowhere near euphoric implies more upside into the year-end and early next year,” said Ed Clissold, chief US strategist at Ned Davis Research.

Ned Davis isn’t alone in registering muted enthusiasm among investors, even with stocks at records. Barclays Plc’s Equity Euphoria Indicator has steadied but remains well below its early-October highs, suggesting “dry powder” remains for a potential yearend push.

Positioning data also signal that there’s wherewithal to add to stocks, with discretionary investors’ equity exposure remaining only slightly above neutral, data compiled by Deutsche Bank show.

“The lack of extreme optimism across many sentiment measures fails to show the exuberant mood normally found at a major top,” said London Stockton, a research analyst at Ned Davis Research. “With this mixed sentiment, a hopeful trend, positive seasonality and a friendly Fed provide a bullish backdrop for stocks into next year.”

The S&P 500 rallied Wednesday following the Fed’s widely anticipated quarter-point cut and Chair Jerome Powell’s commentary about the resilience of the US economy. The index posted a 17% gain this year and closed at a record high on Thursday.

Beneath the surface, the equity rally is broadening meaningfully. Goldman Sachs Group Inc’s Cyclicals vs. Defensives basket, for instance, logged its 13th straight advance on Wednesday, the longest on record.

“You don’t get moves like this unless the market is starting to lean into a better growth outlook,” wrote Goldman’s managing director Lee Coppersmith.

Goldman Sachs. Source: Bloomberg

History also suggests the rotation may have legs. Since 2007, every period in which cyclicals beat defensives for eight consecutive sessions or more has been followed by positive S&P 500 returns. The index posted a 2% median one-month return and a 6% gain over three months.

“It’s one of the cleaner signals we have that the market is sniffing out better macro conditions before the data fully reflect it,” Coppersmith wrote.

The S&P 500 Equal-Weighted Index closed at a record high on Thursday, widening its advance this month to 1.6%. The Russell 2000 Index of small-cap stocks has jumped 3.6% since the beginning of the month, beating the S&P 500’s 0.8% return.

Looking ahead, investors are also factoring in fiscal support that is expected to extend into 2026.

“It gives the economy a boost at a moment when confidence and investment were at risk of stalling,” Coppersmith wrote.

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