U.S. stocks face a 'hidden bear market' amid macro pressures, with potential upside if risks ease.

火星财经消息， on October 18, The Kobeissi Letter published an article stating that the U.S. stock market is currently experiencing a "hidden bear market within a bull market": although the S&P 500 is only about 2% below its all-time high, the majority of its constituent stocks have already seen significant pullbacks. The firm argues that macroeconomic pressures have depressed stock valuations, while the large technology companies driving index gains still maintain solid fundamentals for earnings growth. Eighty-four percent of S&P 500 constituents are down at least 10% from their all-time highs, 59% are down at least 20%, 41% are down more than 30%, and 17% are down more than 50%; index gains remain highly concentrated in a few companies. The firm notes that market interest rate expectations have shifted significantly. At the beginning of the year, investors anticipated at least three Fed rate cuts by 2026, totaling 75 basis points; now, after one rate hike has already occurred, the market expects three additional hikes by June 2027. Despite oil prices exceeding $100 and inflation nearing 4%, the S&P 500 remains near its historical peak. One of its bullish arguments is earnings growth: the S&P 500’s consolidated earnings growth rate for Q2 2026 is projected at 52%, the highest since Q2 2021. Over the past 12 months, NVIDIA’s stock price rose 21%, while its P/E ratio declined by 46%; its current forward P/E is approximately 24x, close to the S&P 500’s 22x. The firm believes that the large technology stocks driving the index still carry substantial macroeconomic discounts, and the current market concentration remains favorable—or at least not yet problematic—for the S&P 500. Regarding future prospects, the firm suggests that if signs emerge of an end to the Iran conflict and global energy tensions ease, energy prices and inflation expectations could decline, prompting the Fed to adopt a more dovish stance. This could lead to a narrowing of valuation discounts for tech stocks and broader market participation in gains. The firm also notes that, had the Iran conflict never occurred, the S&P 500 might already be above 9,000 points.