Market Outlook #6 – The US Market’s Mania Phase

1. A Post-Rate-Cut Rally Fueled by Expectation, Not Fundamentals

Since the Federal Reserve’s rate cut on September 17, the US Market has rallied relentlessly. Yet this rally appears rooted less in improving fundamentals than in speculative optimism about further policy easing.

After the cut, the S&P 500 and Nasdaq both reached record highs, but key economic indicators painted a weaker picture. September private-sector employment posted the steepest decline in over two years, while manufacturing and services PMIs continued to soften. Still, investors interpreted these signals as justification for additional rate cuts — proof that “bad news is good news” remains the market’s dominant narrative.

J.P. Morgan strategist Marko Kolanovic recently warned that “the current rally is sustained by liquidity and sentiment rather than fundamentals,” signaling the possibility of an overheated phase. Similarly, Goldman Sachs CEO David Solomon cautioned that “the AI-driven rally could trigger a drawdown within 12–24 months,” highlighting mounting complacency among investors.

In other words, the economy is cooling, yet the US Market keeps rising — a rally built on faith in monetary rescue rather than tangible growth.

2. Indifference to Risk: When Bad News Becomes Bullish

Even traditionally bearish events have failed to dent momentum. The early-October US government shutdown barely moved equities, with the S&P 500 holding near record levels. Weak employment reports that once rattled sentiment now reinforce expectations of further easing.

Veteran investor Bill Smead captured the tone succinctly: “Investors are chasing stories, not valuations — like dogs chasing cars.” The description fits a market where narrative momentum outweighs earnings logic. Meanwhile, the New York Fed’s latest survey showed falling inflation expectations but declining economic confidence — a divergence that mirrors the late-stage dynamics of the dot-com bubble.

3. ETF Expansion and Leverage Mania: A Familiar Warning

The ETF industry’s current trajectory echoes past speculative peaks. As of August 2025, more than 4,300 new ETFs and ETPs had been launched in the US Market — almost double the count from a year earlier. Roughly a quarter of this year’s launches are leveraged or inverse vehicles, many offering 3× daily exposure or single-stock leverage.

This pattern resembles the 1999–2000 and 2020–2021 cycles, when rapid product proliferation preceded sharp corrections. According to Julien Garran of MacroStrategy, “the current AI-themed investment bubble may be up to 17 times larger than the dot-com frenzy,” fueled by excess liquidity funneled through ETFs. Morningstar’s ETF Boom 2025 report likewise warned that “the industry is innovating faster than it is growing,” suggesting complex leverage products may amplify retail risk.

When new capital, new instruments, and euphoric sentiment accelerate together, the US Market often collapses under its own weight. The QQQ surge of 1999 and ARKK’s 2021 spike both ended the same way — with a violent unwind.

4. October Trading Outlook — Aggressive but Disciplined

The hydrogen sector’s explosive rally has delivered exceptional gains, pushing my year-to-date performance beyond +200%. This result validates a tactical approach aligned with the US Market’s liquidity-driven phase.

Despite recognizing the mania, I remain actively positioned. My strategy balances aggression with discipline — maintaining exposure to high-momentum names while keeping sufficient cash to pivot quickly.

• Hold stocks still producing strong upside momentum.
• Exit immediately from positions losing their catalyst, via rapid profit-taking or tight stops.

October Objectives

1. Hydrogen Profit Management — Determine the optimal timing to trim or exit positions as momentum shows signs of exhaustion.
2. Downside Preparation — Build a shortlist of fundamentally solid, liquid names to accumulate on correction.
3. Continuation Scenarios — If the mania persists, identify next-wave leaders (AI infrastructure, clean energy) and redeploy capital accordingly.

This is a month for controlled aggression: maximize participation in strength while preserving the flexibility to de-risk instantly. Guiding rule: trade the mania, but never become part of it.

5. Conclusion — Between Confidence and Complacency

The US Market is thriving on expectation rather than execution. As Bloomberg Economics observed, “Current valuations are no longer justified by rates or profit forecasts; they are sustained almost entirely by easing expectations.” Such sentiment-driven expansion is powerful but fragile.

History rarely repeats verbatim, yet it rhymes loudly: the dot-com era, the meme-stock craze, the liquidity peaks of 2021 — all began with faith and ended with gravity. Rate cuts can extend the cycle, but markets intoxicated by easy money ultimately self-correct.

Today’s US Market stands on that thin line between rational confidence and irrational exuberance. Navigating it demands discipline: precision over emotion, adaptability over conviction.