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Are Stocks Headed for a Meltup? By Spencer Jakab

U.S. economic data produced mixed signals Thursday ahead of next week's Fed interest-rate decision: a deterioration in the jobs market and stubborn inflation. Investors saw the glass as half full, pushing stocks to a fresh record . Futures point to a cooling off as the week wraps up.

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One of the greatest investors of all time, Stanley Druckenmiller, has a cautionary tale for all of us.

Skeptical about tech stocks during the bubble a quarter century ago, he bet against them too early. Licking his wounds, Druckenmiller saw other traders making huge gains while he was playing it safe. The tech-heavy Nasdaq Composite crossed 3000 in November 1999, having doubled in a little more than two years.

Those gains accelerated, and it crossed 4000 late the following month. Many networking stocks were doubling and then doubling again. A little over two months later, the index briefly crossed 5000.

So like around March I could feel it coming. I just-I had to play. I couldn't help myself. And three times the same week I pick up a-don't do it. Don't do it. Anyway, I pick up the phone finally. I think I missed the top by an hour. I bought $6 billion worth of tech stocks, and in six weeks I had left Soros and I had lost $3 billion in that one play. You asked me what I learned. I didn't learn anything. I already knew that I wasn't supposed to do that. I was just an emotional basket case and couldn't help myself. So, maybe I learned not to do it again, but I already knew that.

The ride up sure was fun though. Could the stars be aligning for another meltup?

Back then, an already red-hot stock market was stoked by three Fed rate cuts in late 1998 after hedge fund Long Term Capital Management's collapse. Although it then began to raise rates in 1999, the Fed had simultaneously flooded the financial system with liquidity, fearing Y2K disruptions that never happened.

"We typically speak of stock market meltups as desirable for a limited time only, as they're typically followed directly by meltdowns," wrote strategist Ed Yardeni this week. Not necessarily, though, if earnings growth is supportive.

Fund manager Jeremy Grantham of GMO, who has been bearish for some time while claiming we're in a classic bubble, isn't reassured by that possible earnings safety net. He's called bubbles "excellent fundamentals, euphorically extrapolated" and has noted parallels between AI and the tech wave that wrongfooted Druckenmiller. For Grantham, the telltale sign of a meltup is an "upcycle of real acceleration" that tends to last about 21 months .

While there are signs that we may be in or entering that phase-near-record valuation, extreme market concentration and big gains in low-quality, speculative investments-the Fed's actions are being watched closely this time, too.

Yardeni sees 25% odds of a meltup that would lift the S&P 500 to 7000 by year end and 20% odds of a correction. But he says the Fed cutting interest rates next week and signaling more cuts to come would increase meltup chances and decrease those of a correction.

Yardeni's numerical odds, along with Grantham's past averages of how long meltups keep melting up, offer a false degree of precision for those fearful of AI hype but greedy enough to wager on another spectacular leg up.

Identifying turning points is more art than science. One informal sign is when skeptics can't stay away from the raucous party.

Druckenmiller said he knew he wasn't supposed to play and did anyway. Years before that, economist and bubble scholar Charles Kindleberger laid out the psychology that lured him in.

"There is nothing so disturbing to one's well-being and judgment as to see a friend get rich."

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Stocks I'm Watching

Alibaba : The Chinese technology company released its latest artificial-intelligence model and said it would issue convertible bonds to help fund cloud infrastructure. Shares jumped 5.4% in Hong Kong .

Microsoft : OpenAI and Microsoft reached a deal to extend their partnership, capping a summer of difficult negotiations . Microsoft has been one of OpenAI's earliest partners and is among its largest investors. Shares rose 1.5% in premarket trading.

Warner Bros. Discovery : The Wall Street Journal reported Thursday that Paramount Skydance is preparing a bid for the entertainment conglomerate . Warner Bros. shares rallied premarket, on pace to build on yesterday's 29% jump. Paramount gained 1.5% ahead of the open.

SK Hynix : The Nvidia supplier said it is ready to mass-produce a new generation of memory chips. Shares rose 7% in South Korea to a record high.

Adobe : The software company raised its annual outlook for the second time this year. Shares advanced 4% before the bell.

RH : The furniture retailer trimmed its annual outlook as it contends with higher tariff-related costs and uncertainty. Shares fell 8.5% premarket.

One Big Chart

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Most people grab a Coke or Pepsi based on taste, habit or whatever is placed more prominently in the cooler. Few stop to ask who trucks or packages the cans. In the cola wars, though, trucks have often mattered as much as fizz. Pepsi needs to shed those assets like its rival did.

What I'm Reading Who wants an AI unicorn? These young tech hustlers, and they're giving up a lot personally to make their startup dreams come true. No booze, no sleep, no fun. ( WSJ ) Individual investors typically have access to a tiny fraction of the shares sold in an initial public offering. That's changing lately with some tech and crypto offerings. It's meant to dampen huge pops, and the retail crowd is also less likely to dump the stock if it has a big jump. ( WSJ ) Could the dollar lose its dominance? It's happened before. ( WSJ ) IPO mania is back. Is this an echo of the dot-com bubble? (Barron's ) Want to launch a hot ETF these days? Get yourself on CNBC a lot, and consider garish suits. ( ETF.com ) Today in Markets History

On this day in 1836, the New York Stock Exchange prohibited its members from trading in the streets outside. But open-air trading persisted under the nickname of "the Curb," which ultimately became the American Stock Exchange.

Beyond the Newsroom

WSJ | Buy Side: See our list of current Heloc rates , and tips on how to get the best ones.

About Me

Business and finance have fascinated me for a long time. Before writing this newsletter, I edited The Wall Street Journal's Heard on the Street team for a decade, wrote two investment books and managed a team of stock analysts at a global investment bank.

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September 12, 2025 06:35 ET (10:35 GMT)

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