Despite entering November—historically the strongest month for U.S. stocks—the market’s diverging trends are unsettling even Wall Street’s most optimistic investors.

On November 3, Amazon.com (AMZN) surged 4% after signing a $38 billion compute deal with OpenAI to supply hundreds of thousands of NVIDIA (NVDA) GPUs, lifting the "Magnificent Seven" tech giants by 1.2%. However, weaker-than-expected U.S. ISM manufacturing data on Monday reinforced a tech-led rally amid broader market weakness. Over 300 S&P 500 stocks fell, with the Dow and small-cap indices also closing lower.

While robust earnings and AI-driven narratives fuel the rally, stretched valuations and deteriorating market breadth are raising alarms. Investors’ unwavering belief in perpetual gains has prompted caution among prominent bulls.

Wall Street’s noted optimist Ed Yardeni issued a rare warning, citing excessive bullishness as a contrarian indicator. He cautioned that poor market breadth leaves stocks vulnerable to a pullback from record highs on any negative surprise.

**Cracks in the Rally’s Foundation** Since April, the Nasdaq has rallied nearly 40% from its lows, but the gains appear concentrated in mega-cap tech. Market breadth—a key health metric measuring participation—is flashing red.

The equal-weighted S&P 500 has declined even as the cap-weighted index climbed, signaling narrow leadership. Louis Navellier of Navellier & Associates noted, "While momentum remains positive, returns are hyper-concentrated. AI-heavy portfolios have outperformed dramatically this year."

LPL Financial strategists Adam Turnquist and Jeff Buchbinder warned that diverging breadth signals "new fissures" in the rally’s foundation, reminding investors that "bull markets don’t move in straight lines."

**Extreme Optimism as a Red Flag?** Yardeni highlighted that rampant bullishness itself is a concern. The S&P 500’s 37% surge since April is among the top 5 such rallies since 1950. Technically, the index trades 13% above its 200-day moving average—a sign of overextension.

Analysts note Yardeni’s shift is striking, given his steadfast support for the rally and his S&P 500 year-end 2025 target of 7,000—one of Wall Street’s highest.

Evercore’s Julian Emanuel echoed warnings: "Record optimism heightens vulnerability to imperfect news." eToro’s Bret Kenwell added that any shift in Fed rate-cut expectations could trigger selling.

**Can Seasonal Strength Offset Pullback Risks?** Historical trends favor bulls: Bespoke data shows the S&P 500 averages a 2.6% November gain after a 10%+ year-to-date rise through October. CFRA’s Sam Stovall expects year-end gains despite near-term consolidation, though some warn the rally may be "front-loaded."

Ameriprise’s Anthony Saglimbene sees strong fundamentals for favored stocks but acknowledges technical overbought conditions may spur brief pullbacks. Pepperstone’s Michael Brown concluded, "The path of least resistance remains upward," citing earnings growth, economic resilience, and accommodative policy.