CJ's Weekly Comment 7-25-2025
Market Commentary: Navigating the AI Bull's Maturity
July 25, 2025
After five and a half decades of analyzing market cycles, I find myself witnessing a fascinating inflection point in what we've appropriately dubbed the "AI Bull" market. This 1,017-day rally, delivering a remarkable 78.3% gain since October 2022, has now crossed into mature territory—surpassing the median historical bull market gain of 76.7% while approaching the average duration of 1,011 days.
Historical Echoes and Modern Parallels
The parallels between today's AI revolution and the Internet boom of the 1990s continue to unfold with striking precision. Our Netscape-ChatGPT correlation analysis reveals we're positioned roughly where the market stood in August 1997—deep into a transformative technological cycle, yet potentially with significant runway remaining. Remember, the Dot Com boom continued for nearly three more years after similar concerns about frothiness emerged in late 1997.
However, today's valuations present a more nuanced picture than the early Internet era. While the S&P 500's price-to-earnings ratio of 27.0 sits 4.5 points above August 1997 levels, and Technology's P/E of 41.3 has expanded more dramatically, the underlying earnings foundation appears more robust. According to FactSet's latest Earnings Insight report, the blended earnings growth rate for Q2 S&P 500 EPS currently stands at 6.4%. This is above the 4.9% expected at the end of the quarter. The blended revenue growth rate is 5.0%.
Technical Terrain and Market Internals
Current technical conditions suggest a market walking the tightrope between momentum and excess. The S&P 500 and Nasdaq 100 have reached overbought territory at two standard deviations above their 50-day moving averages, while both indices approach the upper bounds of their long-term uptrend channels. Yet market breadth remains constructive—the cumulative advance-decline line continues making new highs, confirming the price advance.
The earnings season narrative reinforces this complexity. While 80% have beaten consensus EPS expectations, above the 77% one-year average and the five-year average of 78%, share-price reactions suggest good news may already be embedded in valuations. Companies beating estimates are receiving more muted rewards than historical norms, while misses are being punished more severely.
Federal Reserve Positioning: Measured Rather Than Urgent
The Federal Reserve's current posture reflects sophisticated economic management rather than crisis response. Our analysis of multiple policy metrics—from real rates to Taylor Rule calculations—suggests current policy sits roughly where economic fundamentals dictate. The Fed Funds rate appears appropriately calibrated rather than extraordinarily tight, despite President Trump's rhetorical pressure for aggressive cuts.
Market expectations for 1-2 cuts this year, followed by 2-4 cuts in 2026, reflect this measured approach. The bond market's term structure isn't signaling policy urgency, with the 5-year/12-month yield spread remaining well within normal ranges.
International Renaissance
A particularly encouraging development lies in international markets finally breaking through decades-old resistance levels. The MSCI All World ex US index has surpassed its pre-Financial Crisis highs—a milestone that took over 15 years to achieve. While US markets have delivered 300%+ gains from those levels, international equities' breakout suggests a broadening of global economic recovery.
Strategic Observations
Positioning for Maturity: This bull market's transition into adulthood doesn't signal immediate termination—historically, bulls surviving beyond two years tend to extend significantly. However, the combination of elevated valuations, overbought technicals, and approaching seasonal weakness (August-September) counsels prudent position management.
Sectoral Evolution: The Technology sector's 33.6% S&P 500 weighting mirrors peak Dot Com levels, yet today's fundamentals appear more sustainable. AI implementation stocks (+184% since 2022) continue outpacing infrastructure plays (+148%), suggesting real economic adoption rather than speculative excess.
Tactical Considerations: The surge in heavily shorted stocks (+79% since April) signals speculative froth reminiscent of 2021's meme stock mania. Such episodes typically conclude abruptly, providing opportunities for patient capital.
Forward Perspective
As we navigate this market's maturation, successful investing demands balancing historical perspective with contemporary realities. The AI revolution's economic impact appears genuine and sustainable, unlike purely speculative bubbles. Yet valuations and technical conditions suggest selective rather than aggressive positioning.
The autumn months historically challenge even robust bull markets. Investors would be wise to maintain exposure to secular growth themes while preparing for tactical rebalancing opportunities that seasonal weakness often provides.
In markets, as in life, maturity brings both opportunity and responsibility. This bull market's adult phase demands correspondingly sophisticated navigation.
Disclaimer
This commentary is provided for informational and educational purposes only and does not constitute investment advice, a recommendation to buy or sell any securities, or personalized financial guidance. Market conditions can change rapidly, and past performance does not guarantee future results. All investment decisions should be made based on individual circumstances, risk tolerance, and financial objectives, preferably in consultation with a qualified investment professional. The author may hold positions in securities discussed in this commentary.
P.S. I have completed a book on AI and submitted it to my editor for review. I hope to publish and will keep you all posted on its progress.