But Most Stocks Are Already in a Bear Market

Although the S&P 500 is inches away from a record high, the picture looks dramatically weaker beneath the surface.

The analysts at the Kobeissi Letter argued that Wall Street is in a rare “bull-bear market,” with key indices, such as the S&P 500, hovering near record highs even as most of its components trade well below their peaks.

The KL’s analysis believes this divergence could eventually fuel another powerful rally if inflation, energy prices, and interest-rate pressures ease.

The Contradiction

The apparent discrepancy comes after a dramatic deterioration in the macro backdrop. At the start of the year, markets expected at least three Fed rate cuts. Instead, the central bank hiked rates in September, and current expectations imply another three increases by June 2027. This translates to a 175-basis-point swing in the expected policy path.

At the same time, Brent crude skyrocketed to $106 per barrel, diesel has surged more than 80% from its January lows, and inflation remains almost 2x higher than the Fed’s target.

According to the KL, this contradiction stems from extreme market concentration. The analysts found that 84% of S&P 500 companies are at least 10% below their all-time highs, while 59% are down 20% or more. 41% are down more than 30%, and 17% are down more than 50% from their respective ATHs.

Only 10 companies have generated roughly 70% of the S&P 500’s gain since the March 30 bottom. Nvidia alone accounts for about 13% of the rally, while Micron, Apple, Microsoft, AMD, and Alphabet were among the other dominant contributors.

Put simply, the headline index looks healthy largely because a small group of technology giants continues to pull it higher. In reality, the analysts argued that this may actually represent an opportunity rather than a warning. If market conditions improve even mildly, the broader index could receive a powerful new source of buying pressure.

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What About BTC?

The analysis added that if geopolitical tensions subside and oil prices pull back, inflation expectations could fall with them, potentially allowing the Fed to become less restrictive. This could remove part of the discount currently weighing on equities and allow the rally to broaden beyond the mega caps.

Although BTC was not a central focus of the analysis, its presence in global finance and its susceptibility to inflation and macro news put it under the microscope. Persistent inflation and the dollar’s declining purchasing power can strengthen the long-term appeal of scarce assets, while lower energy prices and a more dovish Fed would generally improve liquidity conditions for risk assets, including crypto.

For now, though, the S&P 500 paradox remains, and all eyes are on the late October FOMC meeting, where the Fed is expected to keep rates unchanged. However, a hawkish surprise is likely to intensify the selling pressure on risk-on assets.