U.S. Stocks in a Hidden Bear Market, 84% of S&P 500 Constituents Down Over 10%

On October 18, The Kobeissi Letter stated that U.S. stocks are experiencing a "hidden bear market within a bull market." The S&P 500 index is only about 2% away from its all-time high, but most constituents have clearly retreated. 84% of S&P 500 constituents have pulled back at least 10% from their historical peaks, 59% have retreated at least 20%, 41% have fallen over 30%, and 17% have dropped more than 50%. The organization believes that macro pressures have depressed stock valuations, while large tech companies that support the index still have a foundation for profit growth. Market interest rate expectations have significantly shifted; at the beginning of the year, it was anticipated that the Federal Reserve would cut rates three times by 2026, but it has already raised rates once and is now expected to raise rates three more times by June 2027. Against a backdrop of oil prices exceeding $100 and inflation nearing 4%, the S&P 500 remains near its historical highs. The comprehensive earnings growth rate for the S&P 500 in the second quarter of 2026 is projected to reach 52%, the highest since 2021. If the war in Iran ends and the global energy crisis eases, energy prices and inflation expectations may decline, prompting the Federal Reserve to adopt a dovish stance, which could lead to a reduction in tech stock valuation discounts and more stocks rising.

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