A Rally Without Rest: Why Balance, Not Panic, Is What Wall Street Needs

After a rough day on Wall Street, the S&P 500 dropped about 1.2% (On 4th November, 2025), pulling U.S. markets lower. But there’s more behind this fall than just profit-taking.

What’s Really Happening?

Warning Signs from Wall Street

Two top banking leaders raised caution. Morgan Stanley’s Ted Pick expects a 10–15% correction, calling it a “healthy normalization.”

Goldman Sachs’ David Solomon warned that tech stocks are showing bubble-like behavior, with prices running much faster than earnings.

AI Boom Driving Market Concentration

The AI craze and tech optimism have made a few mega-cap companies dominate the market. In fact, just 10 big tech firms now make up nearly 40% of the S&P 500’s total value, making the market more fragile.

Fed Confusion Adds to Uncertainty

The Federal Reserve is sending mixed signals — some officials talk about possible rate cuts by December, while others say rates should stay high because the economy is still strong.

Adding to the mess, a partial U.S. government shutdown has delayed key data, leaving investors and the Fed guessing about what’s really happening in the economy.

What the Chart Reveals

From a technical standpoint, the U.S. market’s rally has been nothing short of extraordinary. Since the April bottom near 4,835, the index has soared nearly 42%, touching a recent peak around 6,920 — and even gained about 12–13% before the latest (April 2025) pullback began.

But now, the momentum seems to be fading. The chart is flashing early warning signals — RSI divergence suggests that while prices made new highs, the underlying strength (momentum) did not. That often hints at a potential trend reversal.

If this weakness deepens, the index could correct swiftly by around 10%, targeting the 6,200–6,100 zone. And if the “healthy normalization” predicted by Morgan Stanley’s Ted Pick (a 15% drop) plays out, the index might slide further to around 5,700 — a level that would reset valuations to more reasonable territory after the sharp run-up.

For traders searching for short-term trading tips on US stocks, this could be the kind of setup where short-term volatility opens tactical opportunities — but caution is key.

Valuation Check

Let’s set aside all the opinions and headlines for a moment and focus on the key valuation metrics that truly help us understand the real picture of the U.S. market.

The Price-to-Earnings (P/E) Ratio — The Market’s Mood Meter

The P/E ratio (Price-to-Earnings ratio) shows how much investors are willing to pay for each dollar of a company’s earnings.

P/E Ratio = Current Market Price/Earnings Per Share (EPS)

So, Current Market Price = P/E Ratio*EPS

Currently, the S&P 500’s P/E ratio stands at 30.8x, with an EPS of $222.5.

When you multiply the two — 30.8 × 222.5 = roughly $6,800 — it perfectly aligns with the index’s recent market level.

Now, to find out what the fair value of the market should be, let’s use the 5-year median P/E ratio, which is around 25.4x.

Fair Market Price = 25.4*222.5 = 6,650.

This aligns perfectly with the technical chart levels, suggesting that a 15% correction would be a healthy pullback to help cool down the overheated U.S. market.

The Buffett Indicator — Market Cap vs. GDP

One of Warren Buffett’s favorite valuation tools compares the total U.S. stock market capitalization to the country’s GDP — essentially measuring how large the market has grown relative to the real economy.

At present, this ratio stands at around 224%, far above the long-term fair value range of 100–120%. Even when compared to its 5-year median level of 192%, the market still appears significantly overvalued.

To return to its median level, the ratio would need to drop by roughly: [(224-192)/192]100 = 16.6%

That’s roughly a 15–16% correction, which again perfectly aligns with both the technical chart signals and Ted Pick’s projection of a healthy market normalization.

The Bottom Line

The U.S. market’s extraordinary rally has been built on a mix of AI optimism, liquidity hopes, and investor euphoria, but the fundamentals are starting to whisper caution.

Both valuation metrics and technical signals point to the same conclusion — the market is stretched, and a 10–15% correction wouldn’t be a disaster; it would be a return to balance.

History shows that every overheated bull run needs a pause — not to end the story, but to give it a stronger foundation.

So if the coming months bring some red on the screen, smart investors will see it not as fear, but as the market taking a deep breath before its next big move.