Summary of Key Points
U.S. stocks have continuously reached new highs recently, driven by three main factors: first, the development of artificial intelligence (AI) has led to strong corporate financial performance; second, investors' fear of missing out (FOMO) has become a significant driving force, with many rushing to buy shares in hopes of catching up; third, institutional investors have collectively raised their target prices (JPMorgan sees 8,000 points, while Evercore ISI is more optimistic at 9,000 points). At the same time, there are signs of overbidding in the market, but most institutions believe that the fundamentals (economic resilience + AI demand) remain solid. Future gains may come with higher volatility, although the bull market has not yet peaked.
1. FOMO Driving the Market: Investors Fear Missing Out and Rush to Buy Options
FOMO, or the fear of missing out on profits, is a key factor in this market trend:
- Option Data Reveals Anxiety: The ratio of bullish to bearish options on the S&P 500 has risen to 0.9, the highest level in four years, indicating that more people are buying bullish options (betting on stock prices rising) than bearish options.
- Clear Signs of Overbidding: The "bullish percentage index," which measures market breadth, has exceeded 70%, suggesting that most stocks are rising and sentiment is very bullish.
- Institutions Also Fear Missing Out: Strategists at Nationwide believe that the logic behind short positions no longer holds; people are more concerned about not buying into the market than about losing money on their investments. Experts at E*TRADE Securities also note that FOMO, which was previously hidden, is now taking center stage.
2. Institutions Are Collectively Bullish: Rising Target Prices, with AI-Funded Corporate Performance as a Solid Foundation
Wall Street institutions have recently raised their targets for U.S. stocks, with some being very bullish:
- JPMorgan Targets 8,000 Points: They argue that second-quarter earnings exceeded expectations, with 87% of S&P components releasing positive results. They have also raised profit forecasts, expecting EPS to reach $365 in 2026 (a 35% increase) and $420 in 2027 (another 15% increase).
- Evercore ISI Optimistic at 9,000 Points: Despite recent market volatility, they believe this does not indicate the end of the bull market; instead, the probability of reaching 9,000 points has increased. Their AI FOMO index is only at 4 out of 10, far from the 7 during the 1999 internet bubble, suggesting that the market has not yet reached a point of widespread frenzy.
- AI as a Core Driver: Institutions are focusing on AI-related companies like Google, Amazon, and Microsoft, which have rapid growth in cloud services and strong AI demand. Even if these companies' free cash flows are negative next year, the potential for AI to generate revenue could outpace their spending, so there's less concern about investment losses.
3. AI as a Solid Foundation: Strong Performance from Cloud Companies
AI is not just a concept; it is genuinely driving corporate profits:
- Outstanding Performance from Cloud Companies: Google, Amazon, and Microsoft's cloud businesses are growing rapidly, with increasing order volumes and improved cash flows. For example, Google's AI cloud services and Microsoft's Copilot have attracted significant customer interest.
- AI Investments Starting to Pay Off: Initially, there were concerns about the high cost of AI investments, but now increasing client orders show that AI's profitability is improving. JPMorgan believes this will support future revenue growth and alleviate concerns about return on investment.
4. Overbidding Signals Exist, but Fundamentals Remain Stable: Is There a Bubble?
Although market sentiment is bullish, some warn of risks, but most institutions believe the foundation is still solid:
- Contrary Signals: Some investors see the option frenzy as a sign of potential reversal; when everyone is buying aggressively, prices may adjust in the short term.
- Solid Fundamental Basis: Strategists at Mizuho Financial point out that, even if there is a bubble fueled by FOMO, bulls have two supports: a resilient U.S. economy and ongoing interest in AI investments. Therefore, there's no need to worry about a sudden end of the bull market.
- Controversial Issues: Leverage risk (many investors using debt to invest) and how far the market can go by year-end remain uncertainties, but the overall fundamentals are strong.
5. Increased Volatility Does Not Mean the End of the Bull Market: Future Gains May Be More Volatile
Recent market volatility is not a bad sign, according to institutions:
- Volatility Is Not a Sign of the End: Evercore strategists argue that rising volatility does not indicate the end of a bull market; it suggests market vitality. Similar to the 1999 bubble, the more dramatic the gains, the greater the volatility, but we haven't reached the point where everyone sells at once.
- Macroeconomic Factors Will Influence Market Movements: After the earnings season, macroeconomic issues such as Middle East tensions and Federal Reserve policies will affect the market, potentially leading to more volatile fluctuations, but the overall trend remains upward.
In summary, the current U.S. stock market is driven by a combination of sentiment and fundamentals. Although there are risks associated with overbidding, AI and economic resilience provide support, and most institutions are bullish. As long as no extreme events occur, short-term volatility is expected, but the long-term upward trend remains intact.