As stocks notch records, sentiment lags behind, but ’Fed put’ to support bulls

Investing.com -- Stocks are reaching for the skies, clinching fresh records even as a key gauge of investor sentiment lags behind, with recession worries still simmering beneath the surface. But Yarndeni Research says the bull run is far from over, as the “Fed put” is back in play and should cushion any fallout from tariff-driven hits to growth.

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“Despite the latest record highs for the S&P 500 and Nasdaq, the Investor Intelligence and AAII Bull-Bear Ratios remain relatively low… This suggests that stock investors remain wary. It’s as though they’re chanting Roseannadanna’s mantra: ‘[I]t’s always something—if it’s not one thing, it’s another,’” Yarndeni Research said in a recent note.

Investors have found fresh relief as the Israel-Iran conflict cooled and optimism builds for a resolution to Trump’s trade war, even as talks with Canada hit a snag. Offsetting that setback, the U.S. and China resolved a rare earths dispute, and new trade agreements are reportedly in the pipeline. The S&P 500 and Nasdaq both closed at record highs on Friday, with the S&P 500 up 5% year-to-date.

Yet, under the surface, sentiment remains cautious. The Investor Intelligence and AAII Bull-Bear Ratios are still subdued, reflecting persistent recession fears and a string of weaker-than-expected economic indicators. The Citigroup (NYSE:C) Economic Surprise Index has stayed in negative territory, and Q1 GDP was revised down to -0.5%. Personal income and spending both dipped in May, while unemployment claims remain low but continuing claims are creeping higher—a sign it’s taking longer for the jobless to find work.

Still, Yarndeni’s take is that these are signs of a “soft patch,” not a full-blown slowdown. Four of the five best-performing S&P 500 sectors so far this year are cyclical—Industrials, Communication Services, Financials, and Information Technology—underscoring long-term optimism around tech capex, onshoring, and capital markets. The report expects consumer spending to rebound as stock prices hit new highs and tariff turmoil moderates.

Yarndeni argues, however, that the “Fed put” is back: if the economy stumbles, the Federal Reserve is likely to cut rates twice before year-end. Even if the base case is for resilience without Fed help, the futures market is already pricing in two cuts over the next six months and four in the next year. That safety net, Yarndeni says, should keep the bull market intact—even if growth wobbles.

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