“Christmas in July” is an old retail promotional gimmick. On Wall Street this year, it’s looking a lot like July in December. The furious recovery rally that began in late October has now carried the S & P 500 almost exactly to the prior closing high of the year just under 4,600, set in late July. Financial conditions were easing and investors’ collective optimism and risk posture were stretching toward 18-month highs. In the final run-up to the late-July peak in stocks this column surveyed the rally , and asked, “Enough for now? It’s the question to consider at moments like these, with the stock indexes running hot and investor attitudes swinging from decidedly downbeat to downright optimistic over a matter of months.” In the current case, that swing has occurred over a mere five weeks — all of them positive ones for the S & P 500 — for an aggregate 11.6% gain, its best run over a five-week span since the week ended exactly three years ago. .SPX YTD line The S & P 500’s year-to-date performance Yes, the market is overbought by various technical measures. But before the late-week jump, the S & P 500 had simply hovered in place for 10 trading days to digest a three-week surge — the most benign possible way to consolidate a double-digit ramp. The tape rotated rather than retrenched over that span, especially after the cooler-than-expected October consumer price index report on Nov. 14: The mega-cap tech leaders slouched a bit, and the laggard banks and small caps rose from the depths. This is all to the good in terms of technical improvement and breadth expansion that send a friendlier macro message of firmer growth, falling inflation and sufficient liquidity. The late 2023 run-up vs. July’s heights Something will probably come along to challenge the happy setup and cool off a sizzling market. The return to the heights of July 2023 invites a compare-and-contrast exercise of conditions now versus then, to handicap whether the forces that triggered a 10% three-month correction have reassembled. In late July, as now, investors were rushing to embrace the potential for a soft economic landing scenario that they had so recently found farfetched. The prevalence of the phrase in media coverage has tended to crest along with stocks this year, as the chart below shows. This is only a problem now if the economic data starts to conflict with this view, or if Federal Reserve officials deviate from their recent message that it need not kneecap the economy to bring inflation to heel . Investor sentiment has brightened, according to surveys and by the evidence of the very low put/call ratio and savage squeezy rallies in speculative names and unprofitable tech stocks last week. But there appears to be room for bullishness to rise a bit more before it starts to sound a loud alarm. Here’s the long-running Investors Intelligence poll of investment advisory services: The spread of bulls over bears is rising, but shy of mid-summer highs — when the market was at the same level — and the levels typical of a market at record highs in 2021. Likewise, Deutsche Bank’s consolidated equity positioning gauge, capturing equity exposures across multiple investor groups, has bounced off autumn lows but remains well shy of the peak July reading. It’s fair to point out that some recent 2024 outlooks from Wall Street strategists contemplate more upside than was the case a year ago. Back then, the debate over whether the October 2022 index low would hold was a spirited one, and “Don’t fight the Fed” was delivered as a four-word cold shower to would-be bulls. Still, while the 10% to 12% S & P 500 gains seen by Deutsche Bank and Bank of America seem generous, in a typical year this would be a fairly unremarkable sell-side forecast. They’re countered by Goldman Sachs and Morgan Stanley . Meanwhile, Wells Fargo and Barclays are seeing the S & P 500 as dead money next year, at best. Because corporate earnings have come out of their multi-quarter trough and forward estimates for the next 12 months are again rising, the S & P 500 at 4,600 now is less expensive than it was at 4,600 both two years ago and in July. The equal-weighted version of the index is a few notches cheaper still. Taken together, this all suggests that conditions today don’t indicate an acutely fragile market. It’s worth recalling that after the July peak, all that might have been “needed” was a routine 3% to 5% pullback to reset the tape and dial down the trader greed a bit. This is just what unfolded into mid-August, after which a runaway surge in bond yields stoked panic about a higher-for-longer Fed, stickier inflation and heavy Treasury supply . Then — with oil whistling higher and seasonal patterns for stocks posing a challenge — the shock over the conflict between Israel and Hamas delivered a further psychological blow. In other words, a succession of things broke the wrong way to create a deeper correction, taking small-cap indexes to the brink of breakdown, and nicely pulling back the sentiment slingshot far enough to snap the market higher last month as yields retreated fast and financial conditions eased the most in 40 years, according to Goldman Sachs. The rally has broadened, but what’s next? The broadening action of the latest leg of the rally has answered many pleas of stock pickers humbled by a hyper-concentrated index leadership this year. The spread between the “Magnificent Seven” Nasdaq giants, which include the likes of Nvidia and Meta , and the average stock is wide enough in performance and valuation to allow for such a dynamic to play out for a while — perhaps at least through the usual ” January Effect ” phase when underperformers tend to catch a bid. NVDA META YTD line Meta and Nvidia YTD However it goes, take a moment to credit the index-fund purists for profiting this year by holding a portfolio that almost no active, discretionary manager would run: Allowing Apple and Microsoft each to rise above 7% of the book, sitting by as the top seven holdings pushed toward a 30% weighting and not selling a share of Nvidia as it tripled in price and added $800 billion in market value. The virtues of owning the S & P 500 passively have always been low cost, tax efficiency, low turnover and broad exposure to the asset class. Few also credit indexing pioneer Jack Bogle with creating a structure that enforces the ultimate trader’s discipline to let your winners ride and trim your underperformers. On the whole breadth debate now: There have been many complaints for so long about the dominance of the mega caps and much lip service being paid to the supposed virtues of a more inclusive market that I have to wonder whether the market will at last oblige the majority by making stock-picking more fruitful for a while. On the other hand, the market has been changing in character pretty starkly around the turn of the year as of late. While 2021 was a Nasdaq 100 melt-up year, 2022 was the mirror image: Big Tech got blasted and the equal-weight S & P 500 held up better. Then came 2023 and another 180-degree turn in favor of the heavyweight index names. If this clear but hard-to-trust annual pattern holds, then maybe the bank stocks and beat-up retailers are just getting started? The way the mood, positioning and share prices have shifted, a good deal will have to go right to keep the S & P 500 pointed higher, with its early-2022 record high about 4% up from here. Peak yields, peak inflation, peak Fed, peak oil prices and GDP growth moderating from a 5.2% pace last quarter toward 2% now have properly carried the market higher. Now sights are set on a potential “peacetime” Fed easing move early next year, even without the economy buckling and as corporate profits grow nicely, in the manner of Alan Greenspan’s modest “insurance” rate cuts in 1995 after an aggressive tightening push in ’94. This stands in the mists of memory as the rare and matchless ideal soft landing — a sort that is very much worth hoping for, even if it’s too much to confidently expect. Neither this scenario nor a slide into a recession can be disproved in advance, so scares and gut checks will come along the way. The Treasury-yield slide is starting to look like a short-term overshoot, a buying panic in bonds. And the equity market could stand to cool off to avoid overheating in the near term, with Friday’s action hinting at bears capitulating and some forced rotation into unloved sectors. Yet with credit markets sturdy, stocks’ technical setup improved, few obvious financial excesses in need of immediate unwind and a benchmark index that has spent two years going sideways in a domestic economy that’s grown 12% larger over that time, it’s unlikely that any near-term setback from here would be all that deep or decisive.