The S&P 500 is trading only about 2% below its all-time high even as oil sits above $100 per barrel, borrowing costs have returned to 2002 levels, and inflation is running at nearly twice the Federal Reserve’s 2% target, according to The Kobeissi Letter. The publication says that apparent contradiction is exactly the point: the index may be near a record and still be sitting at a kind of bottom.
Its central argument is that the market is showing a bull-and-bear structure at the same time.
229 days after the Iran war began, the index is still higher
The letter says this is day 229 since the Iran war began. Since Feb. 28, the S&P 500 has gained 900 points. From its March 30 low, the index has risen nearly 1,500 points, adding $14 trillion in market value.
Compared with 229 days earlier, the macro backdrop has shifted sharply, in its view. Inflation has nearly doubled, the Fed is raising rates, the world is in what it calls the worst energy crisis in history, and a major technology revolution is unfolding at the same time. Even so, it says most investors would still describe fundamentals as worse than they were eight months ago.
Rate expectations have swung by 175 basis points
At the start of 2026, markets were pricing in at least three Fed cuts this year for a total of 75 basis points. The letter says that expectation was a key part of the bullish case for equities, with investors looking for lower capital costs, more investment activity and record capital spending from technology companies.
Instead, the Fed has already raised rates once this year, and markets expect three more hikes by June 2027. Including the September move, that would bring the total increase to 100 basis points. By its calculation, that marks a 175-basis-point swing in rate expectations, yet the S&P 500 remains near record territory.
The letter ties that shift in part to a historic surge in energy prices. Diesel has risen more than 80% from its January 2026 low, Brent crude has reached $106 per barrel, inflation has doubled, the Fed keeps tightening, and the U.S. fiscal deficit is nearing $2 trillion. Borrowing costs have moved sharply higher as a result.
The index is strong, but most of its stocks are not
The Kobeissi Letter says the headline index masks broad weakness underneath. While the S&P 500 is near a high, most of its constituents are still nowhere close to their own peaks.
It says 84% of S&P 500 stocks are down at least 10% from their all-time highs. Real estate leads the declines, with 97% of stocks down at least 10%, followed by materials at 96%, utilities at 94% and consumer discretionary at 92%.
It also says 59% of constituents are down at least 20% from their highs, 41% are down more than 30%, and 17% are down more than 50%.
Performance contribution since the March 30 bottom has also been highly concentrated. The S&P 500 is up 23% over that period, and 70% of the advance came from just 10 stocks, which contributed 16 percentage points in total.
Nvidia (NVDA) contributed the most, accounting for 13% of the S&P 500’s gain, or 3 percentage points. Micron Technology (MU), Apple (AAPL) and Microsoft (MSFT) each contributed 9%, or 2 percentage points apiece. AMD (AMD) and Alphabet (GOOGL) contributed 8% and 7%, respectively. The remaining 490 stocks made up only 30% of the gain, or 7 percentage points.
That leads the letter to a broader claim: most stocks inside the S&P 500 are effectively still in a bear market, and it views that as a positive rather than a threat for the index at this stage.
Its view: without the war, the S&P 500 could have been above 9,000
The letter argues that absent the Iran war, the S&P 500 might already be above 9,000. It points to the market’s resilience under difficult macro conditions: inflation is close to 4%, gasoline prices are rising, and the Fed is still hiking, yet the index remains only around 2% below its high.
In that framework, it asks how far the index could run if the Iran war ended, oil prices fell and the Fed moved back toward rate cuts.
Earnings are a major part of that case. In the second quarter of 2026, S&P 500 blended earnings growth reached 52%, the highest since the second quarter of 2021. That earlier period followed the global reopening from historic lockdowns and roughly $4 trillion in U.S. government stimulus.
The comparison, in its telling, is striking: earnings growth in an energy crisis and a Fed hiking cycle is matching growth seen during a reopening boom backed by trillions of dollars in stimulus.
Big tech valuations, in its view, are not stretched
The letter uses Nvidia as an example. Over the last 12 months, Nvidia shares have gained 21%, but its price-to-earnings ratio has fallen 46%. Its forward P/E now stands near 24x, close to the S&P 500’s 22x, even though Nvidia has risen 900% over the last five years.
It says many large-cap technology names show a similar pattern, and those names are the ones holding up the broader market. It also notes that the forward P/E of the S&P 500 and the S&P 500 information technology sector are now nearly the same, even though the tech sector has historically traded at a premium to the broader index.
On that basis, The Kobeissi Letter says the megacap technology stocks driving the rally still contain a meaningful discount in their valuations despite trading at or near record highs. It argues those stocks would likely be priced higher without the macro drag of the last seven months.
That case becomes stronger, it says, when more than 80% of the index is already down over 10% from peak levels. Even a modest improvement in market breadth could bring in additional buying pressure. And even without that shift, the dominant large-cap technology names look relatively cheap versus the broader S&P 500, in its assessment.
The March 30 low and the firm’s call
The Kobeissi Letter says it issued a strong buy signal on the S&P 500 and the broader equity market when the index fell below 6,400. At the time, it argued that the bond market was one of the core reasons for a bullish stance, and that the sell-off in technology shares dragging down the broader market appeared irrational.
The index then staged what it describes as a V-shaped rebound. The firm later raised its target to 7,800 and said the Trump administration would intervene in the bond market.
It now says the Trump administration is indeed trying to intervene, though those efforts have not yet worked, and it sees further intervention as unavoidable. The letter adds that its bullish view was already in place on March 30 and that the case is strengthening as it looks ahead to 2027.
Sticky inflation is pushing investors toward assets
Beyond what it calls an embedded discount in equities, the letter says persistent U.S. inflation is pushing investors to hold more assets, not fewer.
U.S. CPI inflation has been above the Fed’s 2% target for 67 consecutive months. The last reading below 2% came in January 2021, when the global economy was still under lockdown conditions. Since then, the dollar has lost 22.5% of its purchasing power. Goods and services that cost $100 in 2021 now cost $129, according to the example in the report.
Its conclusion is that over the long run, investors are likely to increase rather than reduce their exposure to stocks and hard assets.
If the Iran conflict ends and the global energy crisis starts to ease, the letter expects a chain reaction: lower energy prices, softer inflation expectations, a more dovish Fed, the removal of the discount built into technology stocks, and broader participation in the rally. At the same time, it says the AI boom is still accelerating, and many large technology companies have become more attractive on forward earnings even as their share prices have risen.
A bear market inside a bull market
The Kobeissi Letter sums up the current setup as a “bear market inside a bull market.” It says the S&P 500 bull market is now in its fifth year, but meaningful discounting still exists across the market. In its framing, that hidden bear market is suppressing the valuations of the world’s largest and fastest-growing companies.
Once conditions align, it argues, the S&P 500 could be set up for a sharp move higher, with 2027 shaping up to be a year of major uncertainty.