With the S&P 500 at all-time highs.

This is only the third time since 1996.

Inflation remains high, banks are under silent pressure, and valuations have never been so stretched.

The market's celebration continues

Since April, the S&P 500 has risen 35% and reached 24 record closing highs.

This is one of the largest five-month highs in the index's history, comparable to the post-2008 rally.

But this time, there's no fear in the air.

Valuation above anything we've ever seen, even with high interest rates

Price-to-earnings and price-to-book ratios surpassed the dot-com bubble, the 1929 peak, and the 2021 peak.

And all this with inflation above target.

Growth remains steady

US GDP is growing at over 3% annually, a robust pace, with no classic signs of recession.

However, the labor market is beginning to show strong signs of slowing.

This doesn't appear to be the typical default scenario that usually justifies interest rate cuts.

But banks are silently feeling the pressure.

Unrealized losses at American banks currently total $395 billion.

This is the second-highest figure in history, behind only 2022.

The structure is under strain. The Fed is monitoring this closely.

Inflation is still a real problem

Core inflation (CPI) was 3.1%, above target, and remains spread across various sectors.

The PPI rose. The PCE also rose.

Meanwhile, the monetary base (M2) returned to full growth.

The Quiet Slowdown in the Labor Market

The number of Americans who say "there are plenty of jobs" fell to 34.1, the lowest level since 2021.

This indicator has anticipated every recessions in the past.

Cutting prices at highs is rare and dangerous.

Since 1996, this has only happened twice:

• In 2019, before the pandemic • In 2024, at the beginning of the AI ​​euphoria

On Wednesday, it will be the third time. It will cut 0.25 percentage points. But the context now is much more delicate.

Historically, the market likes this.

In 100% of the last 20 times the Fed cut interest rates to 2% from the top, the S&P rose in the following 12 months.

Average return: +13.9%

But the short term isn't always favorable.

Half the time since 1980, the S&P has fallen in the month following a rate cut.

Some of these declines were sharp and rapid.

The Fuel Behind the Cut

This time, the interest rate cut isn't due to widespread economic weakness, but rather amid:

• Inflation Still Resilient • AI Revolution Accelerating Investment

The risk is turning what's already hot into something explosive.

Real assets have already smelled the impasse.

Gold and Bitcoin anticipated all of this.

Both are coming off strong rallies: • Bitcoin +450% • Gold +105%

They are pricing in what lies ahead: lower interest rates with inflation still rife and fiscal chaos.

We're on the edge between relief and disruption.

If the Fed cuts out of conviction, the rally could continue.

If it's out of necessity, the bubble could burst.

A stalemate in which no one seems able to accurately describe the current situation and what should actually be done.

And this is typically accompanied by widespread volatility!