As The Market Reaches New Highs, Big Players Stay Confident — Should You?

The S&P 500 continues to achieve new highs, underpinned by a bullish BofA Global Fund Manager Survey sentiment (5.4, highest since Feb 2025) and revised S&P 500 earnings growth forecasts of 9.4% for 2025. Despite a 0.3% weekly dip, the market ended Friday with positive daily Advance/Decline signals, hinting at the potential completion of a correction, while technicals suggest lower 10-year T-note yields. However, unchanged FMS cash levels imply further rally fuel may be needed.

Analysis

The market is exhibiting sustained bullish momentum, with the S&P 500 achieving 28 all-time highs in 2025, a record for September going back to 2017. This strength is underpinned by improving investor sentiment, as the BofA Global Fund Manager Survey sentiment reading rose to 5.4, its highest since February 2025. Fundamentally, this optimism is supported by upward revisions to corporate earnings forecasts, with analysts now expecting S&P 500 profits to grow 9.4% this year, a notable increase from the 7.1% projected shortly after Labor Day. Despite a minor 0.3% dip for the S&P 500 last week, underlying market breadth signals strength; the weekly Advance/Decline line remains in a positive trend and did not confirm the spring price lows, a historically bullish divergence. Furthermore, a strong close on Friday, with 70% of S&P 500 stocks advancing, turned daily A/D indicators positive. However, some cautionary signals persist. Fund manager cash levels are unchanged at 4.8%, a level that is supportive but may not provide the excess liquidity needed to fuel a significant further rally. Additionally, there is a notable contradiction in manager outlooks, with 59% expecting 2-3 rate cuts while 49% foresee higher inflation. Technical analysis suggests a potential decline in 10-year T-note yields, while sector-specific momentum signals are mixed, showing weakness in Materials (XLB) and Health Care (XLV) but emerging strength in Consumer Discretionary (XLY).

Key Decisions for Investors

• Maintain a constructive outlook on equities given the backdrop of rising earnings estimates and strong investor sentiment, but watch for confirmation of renewed market breadth to ensure the recent consolidation is over.
• Consider positioning for a potential decline in long-term interest rates, as technicals for the 10-year T-note yield point lower, which would typically benefit duration-sensitive growth stocks.
• Evaluate sector-specific exposures, given negative technical signals in Materials (XLB) and Health Care (XLV) that warrant caution, versus a positive momentum signal in Consumer Discretionary (XLY) that may present an opportunity.
• Recognize that fund manager cash levels at 4.8% are not high enough to be considered a strong contrarian buy signal, suggesting that while the environment is positive, risk management on existing long positions remains prudent.