Stocks Reach New Record Highs Without Signs of October Euphoria

The S&P 500 reached a record closing level recently, marking another peak in 2025, although six weeks have passed since its last milestone. The market environment on December 12, however, contrasts sharply with the mood seen in late October.

Back in October, investor excitement was fueled by strong corporate earnings and optimism surrounding artificial intelligence. That same exuberance is notably absent this time, which could be a favorable factor for bulls looking for a year-end rally.

A sentiment index from Ned Davis Research, which monitors 20 factors such as market volatility, investor positioning, and institutional surveys, currently sits below 62.5an area historically linked to extreme optimism.

Since the S&P 500s October peak, investors have shifted focus beyond Big Tech, drawn to sectors benefiting from AI as well as the Federal Reserves recent rate cut. Economists and strategists anticipate strong economic growth in the United States next year, potentially boosting corporate profits. Discussion of an AI bubble has largely been replaced by confidence in overall U.S. growth.

With continued strong earnings and the U.S. economy showing resilience, sentiment far from euphoric suggests potential for further gains into year-end and early next year, said Ed Clissold, chief U.S. strategist at Ned Davis Research.

Other measures also reflect measured enthusiasm. Barclays Equity Euphoria Indicator remains below early-October highs, indicating there is still capital ready to enter the market. Deutsche Bank data show discretionary investors equity holdings remain only slightly above neutral, suggesting capacity for additional stock purchases.

The absence of extreme optimism across sentiment indicators indicates the market is not at a major top, noted London Stockton, research analyst at Ned Davis Research. Combined with a positive trend, seasonal tailwinds, and a supportive Federal Reserve, conditions remain favorable for stocks heading into next year.

The S&P 500 rose on Wednesday following the Feds expected 0.25% rate cut and Chair Jerome Powells comments on the U.S. economys resilience. The index has gained 17% year-to-date, closing at a new record high on Thursday.

The underlying rally is also broadening. Goldman Sachs Cyclicals vs. Defensives basket recorded its 13th consecutive gain, the longest streak on record. Movements like this indicate the market is leaning toward a stronger growth outlook, said Goldman managing director Lee Coppersmith.

Historical data suggest this rotation may continue. Since 2007, whenever cyclicals have outperformed defensives for at least eight straight sessions, the S&P 500 has followed with positive returnsaveraging 2% over one month and 6% over three months. It signals the market is anticipating better macro conditions ahead of official data, Coppersmith added.

The S&P 500 Equal-Weighted Index also hit a record high on Thursday, adding 1.6% for the month, while the Russell 2000 Index of small-cap stocks rose 3.6% since the start of December, outperforming the S&P 500. Investors are factoring in fiscal support expected to continue into 2026, bolstering confidence and investment when it might otherwise stall.

Sources:

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