Bullish Stock-Market Sentiment Sends Contrarian Signal Ahead of Fed

The stock market’s rally to record highs heading into this week’s Federal Reserve meeting has some of Wall Street’s biggest optimists growing concerned that the good vibes are sending a contrarian signal.

After a three-week advance, the S&P 500 Index is up about 19% since late October, and by one measure investors are as bullish as they’ve been since 2021. It all raises the stakes for Wednesday’s Fed decision, as traders are betting on a quicker pace of easing than the central bank has signaled. That puts added focus on Chair Jerome Powell’s press conference and any roadmap he provides for when officials will begin lowering rates from the highest in more than two decades.

“It’s going to be tough for stocks the next few months because the dialog for equities will be focused on what framework the Fed will use for cutting interest rates,” Thomas Lee, head of research at Fundstrat Global Advisors and a leading stock-market bull, said by phone. “That will create a lot of anxiousness for investors.”

It promises to be a massive week on multiple fronts. Hours before the Fed decision, the Treasury will announce its quarterly borrowing plans. Another boost in bond sales is expected. That risks driving up yields and pressuring growth stocks in particular, as the present value of their future profits is worth less as long-term rates rise. Meanwhile, five Big Tech companies with a combined market value of more than $10 trillion will report results, including Apple Inc., Microsoft Corp. and Alphabet Inc.

Bull and Bear Ratios