Are we there yet? Bull market may have more miles

The US bull market is slowing as credit becomes more selective and inflation remains uncomfortable, but the evidence does not yet point to its end.

• The S&P 500 has returned 128.15% since the last 20% peak-to-trough decline, which ended on October 12, 2022, while recent market signals have included wider credit spreads, falling cyclical stocks and higher Treasury yields.
• AI infrastructure is increasingly debt-financed: yields on some CoreWeave unsecured debt have risen to roughly 15%, and since June wider credit spreads have accounted for about half of the increase in high-yield borrowing costs.
• Credit stress has not spread across the market, because spreads in higher-quality corporate bonds remain relatively tight; companies with strong balance sheets, visible cash flows, contractual support and sound financing should retain market access.
• September CPI and PPI data were uncomfortably strong, yet Treasuries rallied, suggesting markets had already priced in rate hikes and were preparing for tighter policy to slow activity.
• Longer-term inflation expectations have remained relatively contained, while the resilience of the US dollar and the Treasury rally suggest that confidence in US assets and concerns about fiscal sustainability have not deteriorated materially.

Takeaway: The bull market may continue, but slowing activity and more discriminating credit markets favor higher-quality credit and defensive equity sectors; investors should watch for renewed economic momentum from an oil-shock resolution or a bond-price rally.