Investors are seized by optimism. Can the bull market last?

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An artificial-intelligence boom has turned into an everything boom

True to form, it was an excellent time to buy. The500 has since risen by 28%. That puts it at its highest level in over a year, and within 5% of the all-time peak it reached at the start of 2022. Moreover, the rally’s progress has been positively Templetonian. Born on despair, it then advanced to the scepticism phase.

For a few weeks, as first one then several American regional banks collapsed in the face of rising rates, it looked like the sceptics had won the day. Instead, it was time to proceed to the optimism phase. Hope of an-fuelled productivity boom displaced fears about growth and inflation as the main market narrative. Shares in big tech firms—deemed well-placed to capitalise on such a boom—duly rocketed.

Now the party has spilled over into the rest of the market. You can see this by comparing America’s benchmark500 index with its “equal-weight” cousin . From March to June, the tech-heavy benchmark index raced ahead while its cousin stagnated. Since June both have climbed, but the broader equal-weight index has done better. And they have both been trounced by theindex of bank stocks. What started as a narrowly led climb has broadened into a full-blown bull market.

It is not just in stockmarket indices that the new mood is apparent. Bloomberg, a data provider, collects end-of-year forecasts for the500 from 23 Wall Street investment firms. Since the start of the year, 14 of these institutions have raised their forecasts; just one has lowered it. Retail investors, surveyed every week by the American Association of Individual Investors, are feeling their most bullish since November 2021.

If investors are to keep paying more and more for stocks, which they will have to do to keep the run going, they must believe at least one of three things. One is that earnings will rise. Another is that the alternatives, especially the yield on government bonds, will become less attractive. The third is that earnings are so unlikely to disappoint that it is worth coughing up more for stocks and accepting a lower return.

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