London Daily

Focus on the big picture.
Saturday, May 31, 2025

Beware the 'melt-up:' Analysts say stocks may soar just before they collapse

Beware the 'melt-up:' Analysts say stocks may soar just before they collapse

Storm clouds appear to be gathering over Wall Street, with many analysts saying a downturn is inevitable. But before the party winds down, some expect an explosive pre-crash rally — known as a "melt-up."

Melt-ups usually occur without any obvious economic reason for the gains. They happen when investors buy assets based on greed, or fear of missing out, instead of fundamental improvements.

First, some quick context: The past five years have been very, very good for investors. The S&P 500 has grown by nearly 90%, and the tech-heavy Nasdaq has grown over 140%. That includes two years of a pandemic that shuttered businesses and snarled global supply chains.

Now the market is grappling with the sobering reality that all bull runs end eventually.

Market watchers say that time may be near amid high inflation, an increasingly hawkish Federal Reserve and geopolitical turmoil. Recently JPMorgan CEO Jamie Dimon warned of "storm clouds on the horizon," former New York Fed president Bill Dudley said he believes a recession is "inevitable" and the yield curve is inverted — when short-term debt pays out more than long-term debt, considered a sign that a bear market could be ahead.

Yet some analysts are predicting a stock market melt-up, in a rush of irrational buying that sends assets soaring just before the bull market's collapse.

Logically, the market has to reach a top before it falls. But historically, there has been a significant acceleration toward that top in the final months before a crash: In 1928, one year ahead of the Great Depression, the Dow hit new highs before crashing by almost 90%. Before its collapse in March 2000, the Nasdaq grew nearly 200% in the 18 months prior.

Currently, sentiment data shows investors are feeling very bearish about the direction of the market, and that they have been for the past two years — during which the S&P 500 returned 75%.

Analysts, meanwhile, are more bullish on individual stocks than they have been in the past decade. Of all the stock ratings on Wall Street, more than 57% are currently "buy" ratings, the highest percentage since September 2011, according to an analysis by InvestorPlace.

"That tells me all the bad news is discounted in the market right now," said David Hunter, Contrarian Macro Advisors' chief macro strategist. "We're at an inflection point for bonds, stocks, rates and the dollar."

Investors are fearful of the Fed tightening monetary policy, Hunter says, but he thinks that inflation is reaching a peak and the tightening cycle will soon end. A quarter-percentage-point rate hike, he says, is meaningless when stock market and home values are nearly 30% above pre-pandemic levels and unemployment is historically low.

"We believe that, if the yield curve inverts, the data says the stock market will have a massive 'melt-up' over the next two years. We're talking 20% or greater gains," wrote Luke Lango, InvestorPlace senior investment analyst.

Hunter predicts that the next quarter or two will bring huge gains to investors, but the fall will also be significant. As stocks continue to soar, investors risk becoming complacent just as prices take a nosedive.

In the heat of a melt-up, investors may feel a keen sense of FOMO. But when the melt-up inevitably melts down, they may be happy they waited it out.

Newsletter

Related Articles

0:00
0:00
Close
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Trump Threatens 25% Tariff on iPhones Amid Dispute with Apple CEO
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
Liverpool Car Ramming Incident Leaves Multiple Injured
Australia Faces Immigration Debate Following Labor Party Victory
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Macron Dismisses Viral Video of Wife's Gesture as Playful Banter
Cleveland Clinic Study Questions Effectiveness of Recent Flu Vaccine
Netanyahu Accuses Starmer of Siding with Hamas
Junior Doctors Threaten Strike Over 4% Pay Offer
Labour MPs Urge Chancellor to Tax Wealthy Over Cutting Welfare
Publication of UK Child Poverty Strategy Delayed Until Autumn
France Detains UK Fishing Vessel Amid Post-Brexit Tensions
Calls Grow to Resume Syrian Asylum Claims in UK
Nigel Farage Pledges to Reinstate Winter Fuel Payments
Boris and Carrie Johnson Welcome Daughter Poppy
×