Four things for stock bulls to worry about other than the shutdown

[Wall Street New York stock exchange stock market]
alexsl

The stock market shrugged off the government shutdown last week.

The benchmark S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]) rose 1.1%.

Past shutdowns have had minimal effect on the stock market or on the economy, and the bet on Wall Street is that something similar will happen again. Many professional investors expect the market to climb still more, even after a 35% surge from its low in April.

But there are risk. Among them:

VALUATION

One valuation measure popularized by Nobel-winning economist Robert Shiller, which looks at profits over the preceding 10 years, shows the S&P 500 near its most expensive level since the 2000 dot-com bubble

Ann Miletti, head of equity investments for Allspring Global Investments, has been struck by how much stock prices have shot up for speculative kinds of stocks, such as smaller, money-losing companies. They've done much better than their profitable counterparts in recent months.

She said she's feeling relatively optimistic about conditions for stocks going into 2026, but “it’s these little bubbles that are concerning to me. When you see things like this, it’s generally not a good thing.”'

EARNINGS STAKES ARE HIGH

Analysts are looking for S&P 500 companies to report collective growth of 8% in earnings per share from a year earlier, according to FactSet. They'll need not only to hit that target, but also to forecast continued growth for the rest of this year into next.

That's even though companies are still trying to figure out how to deal with tariffs, stubbornly high inflation and other shifts in an uncertain economy.

POWELL LEANING HAWKISH

Fed officials have indicated they're likely to cut because the job market is slowing.

But Chairman Jerome Powell has insisted they may have to change plans quickly. That's because inflation has remained stubbornly above the Fed's 2% target, and lower interest rates can give inflation more fuel.

“I feel like interest rates and expectations of what the Fed is going to do are driving everything right now,” Miletti said.

“If the Fed doesn’t cut as much as people are expecting, any of these areas that look a little speculative, because they’re not based on fundamentals, those areas will have some real problems.”

AI RELIANCE

“This is the question of the decade,” said Yung-Yu Ma, chief investment strategist at PNC Asset Management Group.

Ma does not feel that AI-related stocks look too expensive, even after their big climbs, but that's only as long as gangbusters growth and sales for the industry keep going.

AI will need to make the economy more productive in order to offset the upward pressure on inflation and interest rates that are coming from the huge mountains of debt that the U.S. and other governments worldwide are building.

“If we do achieve these benefits for companies and for people's lives, everything can go well for years,” said Ma. “I think everyone is tying their fortunes to that ship, whether they realize it or not.”

ETFs: (DIA [https://seekingalpha.com/symbol/DIA]) (DDM [https://seekingalpha.com/symbol/DDM]) (UDOW [https://seekingalpha.com/symbol/UDOW]) (DOG [https://seekingalpha.com/symbol/DOG]) (DXD [https://seekingalpha.com/symbol/DXD]) (SDOW [https://seekingalpha.com/symbol/SDOW]) (NYSEARCA:SPY [https://seekingalpha.com/symbol/SPY]) (VOO [https://seekingalpha.com/symbol/VOO]) (IVV [https://seekingalpha.com/symbol/IVV]) (RSP [https://seekingalpha.com/symbol/RSP]), (SSO [https://seekingalpha.com/symbol/SSO]) (UPRO [https://seekingalpha.com/symbol/UPRO]) (SH [https://seekingalpha.com/symbol/SH]) (SDS [https://seekingalpha.com/symbol/SDS]) (SPXU [https://seekingalpha.com/symbol/SPXU]) (QQQ [https://seekingalpha.com/symbol/QQQ]) (QLD [https://seekingalpha.com/symbol/QLD]) (TQQQ [https://seekingalpha.com/symbol/TQQQ]) (QID [https://seekingalpha.com/symbol/QID]) (SQQQ [https://seekingalpha.com/symbol/SQQQ]) (IJH [https://seekingalpha.com/symbol/IJH]) (VO [https://seekingalpha.com/symbol/VO]) (IWR [https://seekingalpha.com/symbol/IWR]) (MDY [https://seekingalpha.com/symbol/MDY]) (VOE [https://seekingalpha.com/symbol/VOE]) (VOT [https://seekingalpha.com/symbol/VOT]) (SCHM [https://seekingalpha.com/symbol/SCHM]) (IJK [https://seekingalpha.com/symbol/IJK]) (IJJ [https://seekingalpha.com/symbol/IJJ]) (IJR [https://seekingalpha.com/symbol/IJR]) (IWM [https://seekingalpha.com/symbol/IWM]) (VB [https://seekingalpha.com/symbol/VB]) (VBR [https://seekingalpha.com/symbol/VBR]) (VBK [https://seekingalpha.com/symbol/VBK]) (SCHA [https://seekingalpha.com/symbol/SCHA]) (SPSM [https://seekingalpha.com/symbol/SPSM]) (DFAS [https://seekingalpha.com/symbol/DFAS])

-- _Tha Associated Press contributed to this report_

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