Insights 
VT 
The recent US stock market rally lacks notable pullbacks, leading to concerns of a bubble. Growth expectations play a significant role in the rally, with past tariffs impacting these expectations. Market sentiment improved when tariffs were paused, and rates were cut, fostering positive growth expectations despite previous negative reports.
Federal Reserve And Market Expectations
The second half of 2025 focuses on the Federal Reserve’s influence. A slightly hawkish FOMC decision and weak labour market data moderated growth expectations. Yet dovish comments and potential rate cuts re-ignited bullish growth momentum. The Federal Reserve’s actions are crucial, as liquidity movement, rather than earnings, drives market trends.
Currently, the market anticipates 112 bps easing by 2026, surpassing the Fed’s 75 bps projection. If the Fed’s easing projections align more conservatively, it could trigger a market pullback. Strong forthcoming US data may catalyse this adjustment, offering a possible buying opportunity for those waiting on the sidelines.
Despite fears, significant pullbacks are unlikely unless inflation concerns rise, causing the Fed to increase rates. Until then, Fed’s dovish stance should keep downside limited. Previous bubbles, such as the dot-com crash, show risks when rates increase. However, with the current Fed support, investors remain cautiously optimistic.
We’ve seen this market rally powered first by the reversal of aggressive tariffs earlier in the year and now by the Federal Reserve. After a sideways summer, the Fed’s dovish comments, especially from the Jackson Hole symposium in August, have injected fresh liquidity and optimism. The focus has clearly shifted from trade policy to monetary policy.
Market Expectations Versus Federal Projections
Liquidity from the central bank is the main force at play, not company earnings. The Fed is supporting the economy and the markets, and you don’t want to fight that trend. The real trouble starts only when the economy runs too hot, forcing the Fed to withdraw its support and work against the market.
Right now, a key tension exists because the market is pricing in more rate cuts than the Fed is projecting. Fed funds futures on September 22, 2025, are pricing in 112 basis points of cuts by the end of 2026, while the Fed’s own dot plot only suggests 75 points. This gap means the market is too optimistic, creating the perfect setup for a pullback.
The trigger for this pullback will be strong US economic data, which would force the market to align with the Fed’s more cautious view. Keep a close eye on the Non-Farm Payrolls report due in the first week of October. After the somewhat weak labor data we saw for August, a surprisingly strong jobs number could easily spark a hawkish repricing and give us the dip everyone is waiting for.
However, any such pullback is very likely a buying opportunity, not the start of a major downturn. For derivatives traders, this could mean buying short-term puts ahead of key data as a hedge or selling cash-secured puts at lower strike prices to enter on a dip. The Fed’s focus on the labor market should limit how far the market can fall.
This situation is very different from the dot-com bubble in 2000, when the Fed was actively hiking rates and working against the market rally. Today, the Fed is providing support, which is why a more relevant mindset is to view bubbles as something to ride. The real bear market signal will come only when inflation, which has been ticking up slightly with the last CPI report at 3.4%, becomes a serious enough problem to force the Fed to hike rates.
