If the White House interferes with the Federal Reserve, why shouldn't the central bank express its view about financial markets? Scott Bessent wonders why the Fed Chair hasn't signaled future rate cuts—which, according to the Treasury Secretary, should drop by 100–150 bps by the end of 2025. Still, Jerome Powell's statement that stocks are "fairly highly valued" made a much bigger impression on investors.

The S&P 500 posted three dozen record highs in 2025, rising 35% off its April lows and adding $16 trillion in market cap. Greed and FOMO were so intense that the broad index went 107 sessions without a single drop of 2% or more in a day—the longest winning streak since July 2024.

S&P 500's Streaks Without a 2%+ Daily Drop

Powell's remark about stock valuations made investors pause. Indeed, according to Bank of America, 19 of 20 indicators flag the S&P 500 as overbought—and four of those are at all-time highs. The 12-month forward P/E ratio for the index sits at 22.9, a level exceeded just twice in the last quarter-century—during the dot-com crisis and the pandemic.

Nevertheless, Bank of America concludes that even high fundamental valuations for the S&P 500 are justified. Lower leverage, less earnings volatility, increased efficiency, and more stable margins are cited as the new reality. A P/E of 22.9 may be the new "normal"—and anything lower could, in fact, be undervalued.

S&P 500 Price/Earnings Ratio Dynamics

Tech giants are valued even higher and are now leading the S&P 500 correction. Not long ago, investors cheered deals like Oracle with OpenAI and NVIDIA with OpenAI. Now, news of Alibaba's $53 billion commitment to AI has largely gone unnoticed. There are growing doubts about the future of artificial intelligence, with some arguing that most new tech boosts economic efficiency—but that doesn't appear to be happening here.

It's quite likely that we're seeing a "sell the news" phase in the S&P 500 after rallying on "buy the rumor." According to EPFR Global and Bank of America, asset managers poured $58 billion into US equities during the week ending September 17—the biggest inflow of the year. Powell's comments about high equity valuations and a reassessment of Fed rate expectations triggered the pullback.

Technically, the S&P 500 daily chart shows a correction within the broader uptrend. A rebound from fair value at 6,610 and the pivot area near 5,570 will be a buy signal if a breakout bar closes above key resistance. From there, Linda Raschke's Holy Grail strategy could be employed going forward.