MW Wedbush warns of growing risks in a fearless market, sees two red flags

By Jamie Chisholm

The Fed 's pivot has amplified speculative risk-taking, says this analyst

The "Fearless Girl" sculpture outside the New York Stock Exchange.

Futures show stocks starting the penultimate session of the quarter on the front foot, as investors continue to shrug off last week's mini pullback from record highs.

The Cboe Volatility index VIX sits below 16, suggesting traders are sanguine, despite a slew of potential market catalysts over the next several days, notably updates on the U.S. jobs sector.

However, it's possible the official nonfarm payrolls report will not be published on Friday if another market hurdle, a total U.S. government shutdown, occurs midweek.

Still, for now, according to Wedbush analyst Seth Basham, the market is "fearless," with not just that low volatility, but also tight credit spreads suggesting investors are not concerned about a meaningful economic downturn.

"Investor sentiment remains constructive, with valuations supported by optimism around AI monetization and expectations of an easing cycle," says Basham, in a note published Sunday.

Other economic tailwinds include a housing market that's showing signs of life. Basham observes that lower mortgage rates recently drove a surge in refinancing activity and a roughly 20% jump in August new home sales.

He also reckons that consumer spending breadth will improve as a result of One Big Beautiful Bill tax cuts. "Recent tax relief measures could accelerate refund levels by at least 5% in 2026 and 15%, providing meaningful support to lower-income households and a potential boost to the economy starting in February," Bashan says.

Within the market there are many sectors where valuations are not stretched relative to history, Basham adds, including healthcare, consumer staples, real estate and materials.

And as for wariness about the similarities between today's market and the dot-com bubble, he said there are "yellow signposts in [the] AI frenzy, but no red stop signs."

For example, whereas in 1999 some 75% of companies coming to market were unprofitable - a sure sign of exuberance - in the second quarter of this year less than 50% of IPO's were unprofitable. Also, we are yet to see megadeals like that of the AOL-Time Warner $350 billion merger that can raise concerns about value destruction, Basham notes.

All that said, he reckons: "The Fed's pivot has amplified speculative risk-taking as market psychology leans on liquidity expectations rather than fundamentals, thereby raising near-term risk."

And he points to two particular reflections of this that may be cause for concern. First is the recent surge in stocks that have high proportions of short interest, a trade particularly favored by many retail investors.

"The surge in high short-interest stocks is classic fuel to the fire of animal spirits -- powerful but unsustainable," Basham says. "While the setup echoes 2020 and could extend near term, history shows these accelerations often end with sharp reversals."

Source: Wedbush

A similar dynamic can be seen in high momentum stocks, where according to Basham, a speculative surge hints at a potential interim top.

"Momentum stocks have been very strong, partly reflecting retail- driven bets. Speculative bets have accelerated as the Fed began to cut interest rates, but we note some wind has been taken out of this rise in the past few days," he says.

The markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is lower, while oil prices (CL.1) slip and gold futures (GC00) are trading at record highs around $3,848 an ounce.

   Key asset performance                                                Last       5d      1m     YTD     1y 
   S&P 500                                                              6643.7     -0.31%  2.84%  12.96%  15.78% 
   Nasdaq Composite                                                     22,484.07  -0.65%  4.79%  16.43%  24.09% 
   10-year Treasury                                                     4.145      -0.80   -8.80  -43.10  35.80 
   Gold                                                                 3847.1     1.74%   9.40%  45.76%  44.82% 
   Oil                                                                  64.78      3.91%   1.20%  -9.87%  -5.14% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due Monday include pending home sales for August at 10 a.m. Eastern.

U.S. President Donald Trump is expected to meet with congressional leaders at the White House on Monday as the threat of a government shutdown on Oct. 1 looms.

Fed officials making comments include Federal Reserve governor Christopher Waller at 7:30 a.m., Cleveland Fed President Beth Hammack at 10 a.m., and Atlanta Fed President Raphael Bostic at 6 p.m.

Occidental Petroleum $(OXY)$ is in talks to sell OxyChem for at least $10 billion, according to a report from the Financial Times.

First Brands, the Ohio-based auto parts group, has filed for bankruptcy protection while disclosing more than $10bn in total liabilities

Denmark's Genmab (DK:GMAB) has agreed to buy Merus $(MRUS)$, a U.S.-listed Dutch biotech firm, for $8 billion.

Best of the web

The AI hype is starting to fade on Wall Street. Here's what investors need to know.

A crypto billionaire's path from pariah to Trump moneyman.

FEMA is paralyzed. Disaster-torn communities are paying the price.

The chart

Source: BTIG

The S&P 500 SPX has now gone 103 days without touching its 5-day moving average, notes Jonathan Krinsky, technical strategist at BTIG. It's the longest streak that the stock benchmark has been above that trend line since April 2024 (108 days), and the fifth longest since 1990, according to Krinsky. "The primary trend remains firmly bullish, but a shakeout is long overdue," he adds.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   INTC    Intel 
   OPEN    Opendoor Technologies 
   PLTR    Palantir Technologies 
   NIO     NIO 
   AAPL    Apple 
   AMZN    Amazon.com 
   BABA    Alibaba 

Random reads

Big donkeys.

A first-class crab called Craig.

Egypt's 'strongman' wrestler pulls ship using his teeth.

World's tallest bridge opens to traffic in China.

-Jamie Chisholm

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

September 29, 2025 06:43 ET (10:43 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.