Is the S&P 500's Shocking Surge to 6,870 a Sign of an Imminent Market Crash? Find Out Now!

Wall Street Nears Record Highs as Rate-Cut Bets Fuel Market Rally

The final trading week before the Federal Reserve’s policy decision in December concluded with a strong show of confidence from Wall Street. The S&P 500 advanced by 0.19% to 6,870.40, sitting just 0.3% shy of its all-time high. Meanwhile, the Nasdaq Composite gained 0.31% to 23,578.13, marking its ninth winning session in ten trading days. The Dow Jones Industrial Average also climbed, adding 104.05 points, or 0.22%, to close at 47,954.99, marking a second consecutive week of gains for blue-chip stocks.

This collective upward momentum reflects a market that is not just anticipating a 25-basis-point rate cut next week, which has an 87% probability, but is also preparing for a potential expansion of the Fed’s balance sheet through reserve purchases. These moves signal a softening monetary stance as we head into 2026.

What started as cautious optimism has transformed into a robust rally, supported by favorable economic data and liquidity. The three major benchmarks have achieved impressive year-to-date gains: 16.8% for the S&P 500, 22.1% for the Nasdaq, and 12.7% for the Dow. Investors are betting that the Fed's upcoming decision will cement a “Goldilocks” scenario—characterized by stabilizing growth, easing inflation, and declining interest rates. This confidence is rooted in solid evidence from economic reports and corporate earnings that have consistently surpassed expectations throughout the fourth quarter.

Fed Policy and Economic Indicators Boost Market Sentiment

The week’s economic releases highlighted a landscape of controlled disinflation and resilient consumer health. The Personal Consumption Expenditures (PCE) Price Index, the Fed’s favored inflation measure, rose 0.3% month-over-month in September, aligning with expectations. Notably, core PCE—which excludes food and energy—also increased by 0.2%, confirming inflation’s moderation towards the Fed’s 2% goal.

Additionally, the University of Michigan Consumer Sentiment Index rose to 53.3, exceeding the forecast of 52. This increase reflects improving consumer optimism as inflation expectations eased. One-year inflation expectations dropped to 4.1% from 4.5%, while long-term expectations fell to 3.2% from 3.4%. This data reassures that the Fed is making headway in controlling inflation without pushing the economy into a downturn.

Meanwhile, the 10-year Treasury yield rose to 4.14%, and the 30-year yield edged higher to 4.78%. This indicates stability in long-duration yields as markets prepare for a shift to lower policy rates. This macroeconomic backdrop has prompted what traders call “the perfect inflation print”—steady enough to justify easing but soft enough to avoid recession fears.

The Earnings Landscape: Corporate Moves and Retail Performance

Corporate news also played a pivotal role. Netflix made headlines with its announcement of a $72 billion acquisition of Warner Bros. Discovery, a deal that fundamentally reshapes the competitive landscape of Hollywood. The cash-and-stock deal values Warner Bros. Discovery at $27.75 per share, a premium of approximately 13% over its previous close. While Netflix's stock fell 2.9% to $100.24 as investors considered near-term transaction costs, Warner Bros. Discovery's shares surged by 6.28% to $26.08.

This acquisition not only gives Netflix control over major franchises like Game of Thrones and Harry Potter but also enhances its content pipeline at a crucial time for traditional media firms. Regulatory challenges remain, but the long-term implications indicate a significant shift in Netflix’s strategic positioning.

Retail earnings offered additional positive momentum. Ulta Beauty surged by 13% after raising its full-year earnings per share outlook to $25.20–$25.50, up from a previous range of $23.85–$24.30. Likewise, Victoria’s Secret increased nearly 18% after projecting its FY2025 sales to reach $6.45–$6.48 billion, exceeding earlier forecasts. The firm reported a 9% year-over-year revenue growth to $1.47 billion, signaling a credible turnaround.

The technology sector also regained its leadership role, with the SPDR S&P Information Technology ETF extending its rally for a tenth consecutive session, the longest winning streak since 2020. Companies like Salesforce, Adobe, and Intel each saw gains of more than 4%, reflecting renewed investor confidence.

Valuation Concerns Amid Optimism

Despite the positive backdrop, there are growing concerns about stretched valuations. The S&P 500’s Shiller CAPE ratio reached 40, matching levels seen during the 2000 dot-com bubble. While this may signal overextension, the current market structure—bolstered by mega-cap profitability and abundant liquidity—creates complications in drawing direct comparisons. However, such elevated metrics warrant caution.

Investor sentiment reflects this confidence, with the AAII Sentiment Survey showing bearish sentiment dropping to 30.8%, the lowest since January. Conversely, bullish sentiment increased to 44.3%, the highest in months. Markets appear to be pricing in an ideal scenario—rate cuts, earnings growth, and no recession—but history suggests that perfection is rarely sustainable.

Looking ahead, the upcoming FOMC meeting (Dec. 9–10) is poised to be a pivotal macro event. While a 25-basis-point cut is nearly assured, the real focus will be on Chair Jerome Powell’s commentary regarding future easing and balance sheet policy. If he maintains a balance of confidence without overly committing to aggressive easing, equities may push into record territory by mid-December.

Ultimately, the S&P 500 stands just 0.7% below record levels, capping a 73% three-year advance driven by enthusiasm around AI, strong earnings, and liquidity growth. Historically, markets approaching record highs ahead of easing cycles tend to deliver further gains in the subsequent year. As such, the current bullish sentiment appears well-founded, though vigilance regarding valuation risks is warranted.