AI red flags: S&P500's $15 trillion m-cap rally & history of October stock market crashes
Since bottoming in early April, the S&P500’s market capitalization has soared by $15 trillion, roughly half of America’s GDP.
- Sep 26, 2025,
- Updated Sep 26, 2025 12:26 PM IST
Jefferies, in its latest GREED & Fear note, has flagged growing concerns over the US stock market as AI-driven capital expenditure surges reach unprecedented levels. The brokerage noted that retail investors and passive investment strategies are fueling an extreme AI capex mania, even as the long end of the Treasury bond market remains unusually calm and the US dollar weakens. The US dollar index has fallen 9.8 per cent year-to-date, marking its worst performance since 2017.
“All this is unfolding as financial markets enter October, historically a month prone to crashes. Yet the recommencement of Federal Reserve easing has emboldened bulls, with talk of ‘melt-up’ scenarios and rising FOMO sentiment,” Jefferies said.
Since bottoming in early April, the S&P500’s market capitalization has soared by $15 trillion, roughly half of America’s GDP. While this surge supports the US economy through the wealth effect, it also raises questions about the Fed’s decision to resume easing.
Currently, the US market accounts for 64.6 per cent of the MSCI All Country World Index, still below its peak of 67.2 per cent recorded in December 2024. Other major markets, including China, have rallied on AI themes as well, but from much lower valuations than in the US. Jefferies said investors in the US have forgotten lessons from the DeepSeek moment in late January.
Jefferies highlighted mounting signs of speculative mania, citing Oracle’s recent earnings reaction as a striking example. The company’s shares jumped nearly 40 per cent in a single day, adding US$255 billion in market value, after it reported a 359 per cent year-on-year increase in outstanding contracted revenues, reaching US$455 billion for the first quarter of FY26. The following day, Oracle revealed that US$300 billion of this came from a five-year deal to provide OpenAI with computing power.
While GREED & Fear considers the US market as having peaked as a share of global equity last December, Jefferies cautioned that structurally, this view could be wrong if AI capex is successfully monetized. Tactically, the market could also extend its strength, supported by ongoing Fed easing and accounting measures delaying the impact of large tech capital expenditures, as hyperscaler business models shift from asset-light to asset-heavy.
Jefferies said the increase in the S&P500 market cap since bottoming in early April is $15 trillion which is equivalent to half of America’s GDP. That is massive support to the American economy in terms of the wealth effect and raises an entirely legitimate question mark over the Fed’s decision to resume easing.
Jefferies said there have been mounting symptoms of speculative mania in the US. One of the most dramatic to GREED & fear was the euphoric market reaction to Oracle’s earnings report earlier this month. The company shares rose nearly 40% in a day, or by $255 billion, after Oracle said it had increased its outstanding contracted revenues not yet realised by 359% YoY to $455 billion in 1QFY26 ended 31 August. One day later Oracle confirmed where a large part of this increase came from when it announced it had signed a $300 billion deal to provide OpenAI with computing power over a five-year period.
GREED & fear’s base case remains that the US stock market peaked as a percentage of MSCI All Country World late last year at 67.2 per cent on December 24, 2024.
"But this view will likely be wrong structurally, if the AI capex is successfully monetised which is not GREED & fear’s base case. Still GREED & fear could also be wrong tactically if this strength continues longer, helped by the likes of continuing Fed easing and the beneficial impact of OBBBA in terms of delaying the accounting impact of the capex spend for Big Tech as the hyperscalers’ business models turn from asset light to asset heavy," Jefferies said.
Jefferies, in its latest GREED & Fear note, has flagged growing concerns over the US stock market as AI-driven capital expenditure surges reach unprecedented levels. The brokerage noted that retail investors and passive investment strategies are fueling an extreme AI capex mania, even as the long end of the Treasury bond market remains unusually calm and the US dollar weakens. The US dollar index has fallen 9.8 per cent year-to-date, marking its worst performance since 2017.
“All this is unfolding as financial markets enter October, historically a month prone to crashes. Yet the recommencement of Federal Reserve easing has emboldened bulls, with talk of ‘melt-up’ scenarios and rising FOMO sentiment,” Jefferies said.
Since bottoming in early April, the S&P500’s market capitalization has soared by $15 trillion, roughly half of America’s GDP. While this surge supports the US economy through the wealth effect, it also raises questions about the Fed’s decision to resume easing.
Currently, the US market accounts for 64.6 per cent of the MSCI All Country World Index, still below its peak of 67.2 per cent recorded in December 2024. Other major markets, including China, have rallied on AI themes as well, but from much lower valuations than in the US. Jefferies said investors in the US have forgotten lessons from the DeepSeek moment in late January.
Jefferies highlighted mounting signs of speculative mania, citing Oracle’s recent earnings reaction as a striking example. The company’s shares jumped nearly 40 per cent in a single day, adding US$255 billion in market value, after it reported a 359 per cent year-on-year increase in outstanding contracted revenues, reaching US$455 billion for the first quarter of FY26. The following day, Oracle revealed that US$300 billion of this came from a five-year deal to provide OpenAI with computing power.
While GREED & Fear considers the US market as having peaked as a share of global equity last December, Jefferies cautioned that structurally, this view could be wrong if AI capex is successfully monetized. Tactically, the market could also extend its strength, supported by ongoing Fed easing and accounting measures delaying the impact of large tech capital expenditures, as hyperscaler business models shift from asset-light to asset-heavy.
Jefferies said the increase in the S&P500 market cap since bottoming in early April is $15 trillion which is equivalent to half of America’s GDP. That is massive support to the American economy in terms of the wealth effect and raises an entirely legitimate question mark over the Fed’s decision to resume easing.
Jefferies said there have been mounting symptoms of speculative mania in the US. One of the most dramatic to GREED & fear was the euphoric market reaction to Oracle’s earnings report earlier this month. The company shares rose nearly 40% in a day, or by $255 billion, after Oracle said it had increased its outstanding contracted revenues not yet realised by 359% YoY to $455 billion in 1QFY26 ended 31 August. One day later Oracle confirmed where a large part of this increase came from when it announced it had signed a $300 billion deal to provide OpenAI with computing power over a five-year period.
GREED & fear’s base case remains that the US stock market peaked as a percentage of MSCI All Country World late last year at 67.2 per cent on December 24, 2024.
"But this view will likely be wrong structurally, if the AI capex is successfully monetised which is not GREED & fear’s base case. Still GREED & fear could also be wrong tactically if this strength continues longer, helped by the likes of continuing Fed easing and the beneficial impact of OBBBA in terms of delaying the accounting impact of the capex spend for Big Tech as the hyperscalers’ business models turn from asset light to asset heavy," Jefferies said.