U.S. Stock Market Hits Record Highs Amid Correction Warnings

S&P 500 and Nasdaq Set New Highs Again
Market Optimism Grows, but Dot-Com Bubble Concerns Spark Caution

As the S&P 500 Index and the Nasdaq Composite Index continue to hit record highs day after day, there are growing projections that the U.S. stock market could enter a short-term correction phase. This is because the current market trend is reminiscent of the dot-com bubble era, leading to calls for a more cautious approach. On the other hand, some argue that if a temporary correction occurs during the third quarter, it should be seen as an opportunity to buy at lower prices.

On July 21 (local time), the S&P 500 Index and the Nasdaq Index once again set new all-time highs in the New York stock market. Optimism over the upcoming earnings announcements from big tech companies helped lift the indices. According to market research firm FactSet, so far, 62 companies in the S&P 500 have reported their second-quarter earnings, and 85% of them have exceeded market expectations. Reflecting this momentum, there is growing anticipation on Wall Street that the S&P 500 Index could rise by more than 10% in the second half of the year, driven by continued strength in big tech stocks.

Christopher Harvey, chief strategist at Wells Fargo, said in an interview with Bloomberg, "Mega-cap tech companies are achieving higher margins and further expanding their market share," adding, "The growth trend in the AI sector will also persist in the long term."

Morgan Stanley also reaffirmed its bullish stance on the U.S. stock market in a memo released the same day, stating that the S&P 500 Index could reach 7,200 points by mid-year, supported by robust corporate earnings. Back in May, when the market was shaken by President Donald Trump's tariff policies, Morgan Stanley had projected that the S&P 500 Index would reach 6,500 points by the second quarter of next year. However, in just two months, the firm not only raised its target but also moved up the expected timeline for reaching it.

However, optimism is not the only view. Global investment bank BTIG warned that the U.S. stock market could experience a short-term correction and pointed out that the recent trend is similar to the dot-com bubble period in 1999. Jonathan Krinsky, chief technical strategist at BTIG, noted that "the Nasdaq 100 Index has closed above its 20-day moving average for 60 consecutive trading days," which is the longest streak since February 5, 1999, when it closed above the average for 77 straight trading days. This means that for the past 60 trading days, the Nasdaq 100 has finished every session above its 20-day average price, indicating a sustained strong upward trend in stock prices.

Krinsky expressed caution, saying that the recent rally in the Nasdaq has been somewhat excessive following the rebound after the tariff shock in April. He also pointed out that even ETFs tracking stocks popular on social networking services (SNS) are showing strength, suggesting that investors are not sufficiently considering fundamentals such as corporate earnings or revenue outlooks.

He warned that these signs could indicate overheating and highlighted the possibility of a short-term correction, but added that the market has not yet reached its peak.

Julian Emanuel, strategist at Evercore ISI, also judged that investor expectations have become excessively high as earnings season gets into full swing.

Emanuel analyzed that while bulls are using positive factors such as strong economic indicators and progress in tariff negotiations as drivers for rising stock prices, much of this good news is already priced into the market. He stated, "Stock prices do not always go up," and pointed out, "Investors are expecting stock prices to keep rising solely on the AI theme."

In particular, he warned that investors are overlooking the risks that could arise from the outcome of tariff negotiations and the potential impact of Trump’s tax cut proposals on the U.S. Treasury market, emphasizing, "It isn't different this time." This response to the question "Isn't it different this time?" serves as a warning against investor sentiment that downplays the risks of a market overheating.

He forecast that, due to excessive optimism, the early pricing-in of positive factors, high valuations, and speculative frenzy, the S&P 500 Index could experience a short-term correction of about 7% to 15%.