Opinion: US stocks are experiencing a 'hidden bear market,' and if macroeconomic pressures ease, it could present a historic opportunity.

BlockBeats news, October 18 – The Kobeissi Letter stated that US stocks are exhibiting a "hidden bear market within a bull market": although the S&P 500 is only about 2% from its all-time high, most constituent stocks have already seen significant drawdowns. The firm believes that macroeconomic pressures have depressed equity valuations, while the large technology companies supporting the index's rise still have earnings growth fundamentals. 84% of S&P 500 constituents have pulled back at least 10% from their all-time highs, 59% have pulled back at least 20%, 41% have pulled back more than 30%, and 17% have pulled back more than 50%, while the index's gains are highly concentrated in a small number of companies.

The firm noted that market interest rate expectations have undergone a significant shift. At the start of the year, investors expected the Federal Reserve to cut rates at least three times in 2026, totaling 75 basis points; currently the Fed has already raised rates once, and the market also expects three more rate hikes by June 2027. Against the backdrop of oil prices above $100 and inflation near 4%, the S&P 500 remains near its all-time high.

One of its bullish arguments is earnings growth. The S&P 500's composite earnings growth rate in the second quarter of 2026 reached 52%, the highest since the second quarter of 2021. Over the past 12 months, Nvidia's stock price rose 21%, yet its price-to-earnings ratio fell 46%; its current forward P/E is about 24 times, close to the S&P 500's 22 times. The firm believes that the large technology stocks driving the index higher still incorporate a substantial macro discount, and that current market concentration is favorable for the S&P 500, or at least not yet a problem.

For the outlook, the firm believes that if there are signs of the Iran war ending and the global energy crisis eases, energy prices and inflation expectations may subsequently decline, and the Federal Reserve may also shift to a more dovish stance, thereby driving the valuation discount on technology stocks to fade and gains to spread to more stocks. It also suggested that if the Iran war had never happened, the S&P 500 might already be above 9000 points.