Woofun AI reports that Ian Harnett, co-founder and chief investment strategist at Absolute Strategy Research, asserts the current U.S. stock bull market has not yet reached its terminus despite approaching extreme valuation levels. Since October 2022, U.S. equities have climbed more than 100%, and when measured from the conclusion of the 2009 financial crisis, the cumulative gain has expanded to 10 times the original value. The primary engines driving this sustained ascent are robust corporate earnings fueled by artificial intelligence technologies and a persistently accommodative monetary policy framework. Harnett cautions that while the market may be entering its "final stage", the definitive end has not arrived, implying that systemic risk remains manageable in the immediate term. Investors must, however, monitor two specific variables: unexpected shifts in interest rate trajectories and potential deterioration in the profitability of AI-centric enterprises, as either could precipitate a market reversal.

Valuation metrics currently stand far above historical norms, yet Harnett argues that high prices alone do not constitute a sufficient condition for a market turning point. Based on actual earnings over the past 12 months, the price-to-earnings ratio sits at 28.4 times, representing a 40% premium over the 40-year average. When utilizing cyclically adjusted 10-year average earnings, the P/E ratio escalates to 41 times, marking a 60% deviation above the historical mean. Even forward-looking valuations based on future earnings projections reach 20.3 times, which remains approximately 25% higher than historical averages. Additional indicators, including price-to-book ratios and price-to-cash ratios, have also hit record highs. Harnett observes that such extreme valuation levels have historically appeared only near the peaks of major bull markets. Nevertheless, breaking the current upward momentum requires significant alterations in interest rate expectations, corporate profit outlooks, or the fundamental logic of the AI sector, none of which have occurred to date.

The mechanism required to terminate this bull market involves a sharp acceleration in interest rates rather than a specific static threshold. Harnett contends that no single "critical interest rate level" exists to trigger immediate disaster; instead, market disruption stems from the speed and magnitude of rate changes. A review of the past 125 years reveals that every peak in a major bull market coincided with a rapid increase in policy interest rates. Market reversals in 1907, 1929, 1973, and 2000 all followed policy rate hikes ranging from 2 to 4 percentage points. In stark contrast, current futures markets have priced in only about 0.5 percentage point of rate hikes, a figure significantly lower than the historical threshold required to end a bull run. Harnett further notes that if the Federal Reserve, under new Chair Josh Walsh, continues to "fall behind the curve" by maintaining a loose policy stance, it will provide the necessary room for the bull market to extend. Although U.S. corporate profit growth is projected to reach 21% in the coming year, historical patterns suggest the Federal Reserve should raise rates even more aggressively, yet current market pricing fails to reflect this pressure.

The potential collapse of the AI bubble represents a deeper, albeit untriggered, risk factor that could ultimately end the current market cycle. Harnett posits that if the bull market concludes, the breakdown of the AI "bubble" will likely serve as the primary catalyst. Currently, AI-related companies continue to report strong profits and healthy sales growth, but investor anxiety regarding the scale of capital expenditures, financing pressures in capital markets, and the cash flows of major cloud computing providers is mounting. From a liquidity perspective, the risk of short-term market pressure remains limited. Even if prominent entities such as Anthropic, OpenAI, and SpaceX collectively raise $200 billion through initial public offerings, U.S. retail investors still hold approximately $2.3 trillion in investable cash, while institutional investors possess an additional $6 trillion. This ample liquidity suggests that such fundraising activities are unlikely to induce a significant market shock. Harnett draws parallels to the burst of the internet bubble, warning that the true danger often originates not from the AI companies themselves but from the deteriorating profits of their customer bases.

Investors are advised to scrutinize the financial health of industries that rely heavily on AI adoption, including finance, manufacturing, media, transportation, education, and healthcare. Any noticeable slowdown in profits or cash flows within these sectors would serve as a more reliable warning sign of the bull market's end than the performance of AI developers alone.

Woofun AI data shows that while the technology sector remains robust, the broader economic impact depends on the successful monetization of AI tools across these diverse industries. The structural integrity of the current market relies on the continued ability of these downstream sectors to generate returns from their AI investments. If the profitability logic of AI technologies were to fundamentally collapse, it would dismantle the core thesis supporting current valuations.

Geopolitical shocks, specifically the escalation of tensions in Iran, have thus far failed to disrupt the market trajectory or act as a "black swan" event. Harnett analyzes that the recent surge in oil prices, in terms of both magnitude and duration, is insufficient to significantly harm economic prospects or drive up interest rate expectations. Historically, oil prices recently rose by about 63%, a figure far lower than the roughly 100% increase observed in 1990 and nowhere near the 300% spike seen between 1973 and 1974. This disparity indicates that current geopolitical shocks exert a very limited impact on the macroeconomy and monetary policy, posing no systemic threat at present. The market has demonstrated resilience against external risks that previously would have triggered severe corrections. Harnett concludes that the AI-driven bull market is likely to continue, having perhaps entered its final stage but not yet reaching its conclusion. This marks a period where high valuations coexist with manageable risks, provided that interest rates remain stable and AI profitability holds firm.