Stocks are climbing at a pace seen only a handful of times since World War II — and one of those ended badly

Finance News 4 min 20 sources

Wall Street keeps setting records on hopes the Iran war is winding down, but the sheer speed of the climb and a collapse in demand for downside protection have strategists flagging froth — even as stubborn inflation keeps the world's central banks leaning hawkish.

Key takeaways

US stocks are climbing at a pace seen only a handful of times since World War II — fast enough that it's making strategists nervous rather than calm.
The cheer rests on hopes the Iran war is winding down, and a collapse in demand for downside protection is a classic froth signal.
Meanwhile inflation hasn't gone anywhere, keeping the world's central banks leaning hawkish.

The US stock market is having one of its strongest runs in living memory, and that is starting to make people nervous rather than calm. The S&P 500 — the index that tracks 500 big American companies — closed at another record on Tuesday, near 7,600, and futures pointed only slightly lower heading into Wednesday [9][19]. The mood is buoyant, fed by a growing hope that the Iran war is winding down. But underneath the cheer, two warning lights are blinking: the climb has been historically fast, and almost nobody is paying for protection against a fall.

A rally with an uncomfortable number attached

The S&P 500 has risen more than 16% over the two months through the end of May, according to Deutsche Bank Research [12]. “That’s a genuinely historic pace,” the bank’s global head of macro research, Jim Reid, wrote to clients; since World War II, the index has climbed this fast only four other times [12]. Three of those came right after a recession, when the market was simply bouncing back from a deep hole — healthy recoveries [12]. The fourth is the one that gives strategists pause: it was the run-up to the “Black Monday” crash of 1987, the only one of the four that did not follow a recession [12]. Today’s surge, coming with no recession behind it, rhymes with that uncomfortable example.

What’s fuelling the cheer: the war might be ending

The immediate fuel is diplomacy. Stocks rallied around the world on hope that the Middle East conflict is easing [19]. Reporting that President Trump told Israel’s prime minister “you’re f—ing crazy” was read on Wall Street as a sign he is losing patience with the war and wants it finished — and investors treated that as good news [19]. The same hope showed up in safer assets: Treasury yields fell as investors bet on an Israel-Hezbollah ceasefire, and the dollar held steady while traders waited for progress on peace talks [6][1]. (Bond yields move opposite to demand — when investors pile into government bonds expecting calmer times, yields drop.)

The tell hiding in the options market

Here is the part that worries the cautious. Investors have been piling into bullish call options — bets that pay off if prices keep rising — and pulling back from puts, which protect against a fall [3]. The five-day average of the Cboe equity put-to-call ratio fell to 0.452, its lowest since March 2022 [3]. In plain terms, demand for upside bets is running at more than twice the demand for protection [3]. Mark Arbeter of Arbeter Investments called it a sign of just how “frothy” sentiment has become amid the artificial-intelligence boom — not a sell signal, he stressed, but a reason for caution [3]. The last time the ratio sat this low was early in the 2022 downturn [3].

The other half: inflation hasn’t gone anywhere

While markets party, central bankers are still bracing. Cleveland Federal Reserve President Beth Hammack said US interest rates “may need to rise” if inflation pressure keeps building, calling persistent inflation her main concern [7]. Europe is leaning the same way: eurozone core inflation — the underlying trend once volatile food and energy are stripped out — climbed again, setting up the European Central Bank to tighten at its June meeting [15][18]. South Korea’s inflation hit a two-year high, putting a rate hike “in play,” and the Bank of Japan is expected to raise rates in June [10][14]. India’s central bank meets Friday on a “razor’s edge,” torn between defending a weak rupee and not choking growth [8][13]. The labour data gives the Fed room to wait: US job openings climbed to 7.6 million in April, near a two-year high [17][2]. So the backdrop is a market sprinting on optimism while the people who set the price of money keep one foot on the brake.

Also moving

Hewlett Packard Enterprise jumped about 35% after earnings, joining a run of wild post-results moves as money chases anything tied to AI infrastructure [16]. In crypto, the mood was the opposite: Bitcoin dropped back under $70,000, and Michael Saylor’s Strategy — long the token’s biggest corporate buyer — extended a slide after breaking its no-selling pledge [4]. In currencies, a new report found the euro has failed to grab much ground from the dollar despite erratic US policy, a reminder of how hard the dollar’s dominance is to dislodge [5]. And for all the gloom about prices, American shoppers are still treating themselves: Victoria’s Secret reported customers spending on small luxuries even as they grumble about the cost of fuel [11].

02 · Lesson · why it matters

Why the moment everyone stops worrying is the moment to start

When a rising market convinces everyone it cannot fall, it quietly removes the very caution that was holding it up.

The same fact can mean two opposite things

A market rising fast looks exactly the same whether it is healthy or dangerous. That is the trap in today’s news. The S&P 500 has climbed 16% in two months — a pace seen only a handful of times since World War II. Three of those times, it was a sick economy getting back on its feet: a good sign. One of those times, it was the giddy run-up to a crash. The number on the screen — “up 16%” — is identical in both cases. The speed tells you something is happening, but not what. To know that, you have to look past the price at the thing underneath.

The loop that feeds itself

Markets have a strange engine the weather doesn’t. A rising price doesn’t just reflect confidence; it creates it. People see the climb, feel reassured, decide the thing is safer than they thought, and buy. That buying pushes the price higher, which looks like proof they were right, which pulls in the next person. Belief moves the price, and the price moves belief, round and round.

This is why a rally can run far past what the underlying facts justify. It stops being about the companies and starts being about the climb itself. The rise becomes its own evidence. And a loop that lifts a market on the way up can just as easily reverse and drag it down — the same machinery, running backwards.

How to tell a rebound from a melt-up

So how do you read which kind of fast rise you’re in? Not from the price — from the behaviour around it.

After a real scare, people climb what traders call a “wall of worry.” Prices rise, but the doubt lingers: investors keep buying insurance, keep bracing, half-expecting it to fall apart. That doubt is healthy. It means the bad news is still being weighed.

A dangerous rise looks different. The doubt drains away. And there’s a number for that. Investors buy “put options” as protection — a bet that pays off if prices drop. Right now, demand for those bets has fallen to its lowest in years; people are piling into the opposite, betting only on more gains. Almost no one is paying for a seatbelt. When the worrying stops, you’re probably not in a recovery anymore.

Why vanishing doubt is the danger, not the all-clear

Here is the part that feels backwards and matters most. When everyone has stopped hedging, it feels like safety — the crowd has decided there’s nothing to fear. It is the opposite. Doubt, hedging, caution: those are the shock absorbers. They are what’s left to cushion a surprise. When they’re gone, a small piece of bad news lands on a market with nothing underneath it, and a stumble becomes a fall.

Picture everyone on a boat crowding to one side for the view. Each person feels safer in the crowd. The boat has never been closer to tipping. A system is most fragile precisely when every participant has concluded it is safe, because that conclusion is what stripped away its margin for error.

It tells you the ground is soft, not when it gives way

One honest limit. This is not a stopwatch. The signal that doubt has vanished can flash for months while the rise continues — the run-up to 1987 looked frothy long before it broke. Reading the regime tells you the ground is soft, not the day it opens up. Anyone who claims to know the timing is selling something.

So the lesson isn’t “get out.” It’s quieter and more useful: know which kind of moment you’re standing in, and keep the caution the crowd is busy throwing away. The cheapest time to buy a seatbelt is when no one thinks they need one.

Two true things at once

Both of these can be true on the same afternoon: this rally may keep climbing for a good while, and it is more fragile than it feels. Holding two opposite-seeming facts without collapsing into “it’s fine” or “it’s doomed” is most of the skill.

The pattern worth carrying past today reaches well beyond markets. When doubt disappears from any system — a winning team that stops reviewing its mistakes, a plan everyone has agreed is certain, a friendship no one tends because it seems unbreakable — that absence is not the all-clear. It’s the sign that the thing quietly protecting you has been removed, right when everyone agreed you no longer needed it.

03 · Lab · your turn

The Last to Hedge

Ride a melt-up round by round, choosing whether to keep paying for protection the crowd has stopped buying — and feel why doubt vanishing is fragility, not safety.