Wall Street Faces Reality Check: Are Equities Truly Expensive Right Now?

The rally that’s lifted U.S. stock indices higher has a fragile foundation—one that hinges almost entirely on the Federal Reserve’s willingness to cut rates. Yet beneath the surface, sentiment among Fed policymakers remains fractured. Edmond de Rothschild Asset Management’s research team has raised fresh concerns about whether is the stock market overvalued at current levels, signaling that this risk shouldn’t be dismissed.

Here’s where the tension lies: markets are pricing in three rate cuts for 2026, but internal divisions at the Fed could dramatically reshape those expectations. While money markets currently assign an 86% probability to a 25 basis point cut this week, the broader consensus for additional easing is far less certain. Committee members’ differing views on inflation and economic resilience introduce unpredictability into what traders are betting on.

The investment implications are stark. If the Fed’s dovish narrative weakens—even slightly—the rally’s oxygen gets cut off. Equities have climbed on the assumption of liquidity, not on fundamental improvements. This is precisely why cautious positioning makes sense. The French asset manager’s warning carries weight: stretched valuations combined with policy uncertainty create an environment where defensive strategies deserve consideration.

For investors watching the tape, the message is clear. The next few weeks will test whether is the stock market overvalued thesis holds, or if economic data forces a repricing lower. Until clarity emerges on the Fed’s actual willingness to sustain rate cuts, staying measured rather than aggressive seems prudent.