The Euphoria Trap
May 16, 2026
The markets have continued to surprise to the upside, repeatedly setting new records despite all the headwinds from rising interest rates, surging oil prices, and the stalemate with Iran. I am faced with the conundrum of not wanting to repeat myself, yet I feel that the previous cautions and advice still pertain. I will be brief on the markets today and then move on to something related arising from all the market euphoria.
This week was the only time that S&P500 index has traded at record highs while less than 50% of stocks are above their 50-day and 200-day moving averages. Want less jargon and terminology? OK, the market’s advance has depended on a much smaller group of stocks propelling it higher. Many of those winners are trading at very lofty, likely unsustainable valuations – prompting my continued concern and calls for caution.
Nonetheless, many investors keep buying the dips, some undoubtedly suffering from FOMO (fear of missing out). Research has repeatedly demonstrated that we all bemoan our losses much more strongly than we cheer our gains. Thus, instead of succumbing to FOMO, one might be better advised to embrace AMO – you already missed out – and not chase the highflyers. Sure, you could get a little more upside…potentially followed by a greater downside. Trees don’t grow to the sky…be patient, wait for the correction – coming as surely as tomorrow’s sunrise.
The euphoria around investing in AI has produced enormous increases in company values and the creation of previously unimaginable individual fortunes. 62% of American adults have money invested in the stock markets, presumably benefitting handsomely during these market rallies. Unfortunately, that statistic does not give a nuanced view. 87% of those earning $100K or more are invested in stocks while only 28% of those earning $50K or less are participating. Moreover, the top 10% of wealthiest households hold more than 85% of all stocks. The rising market valuations have heightened the clear gap between the ‘haves’ and the ‘have-nots’ and the growing discomfort and unhappiness of many.
I think it is fair to characterize our country as unhappy these days, angry even, the current extreme partisanship a visible outgrowth. Rising inflation and surging costs of common purchases (gas, food, health care, insurance…) has only exacerbated the dissatisfaction. Studies have shown that countries with a growing and prospering middle class present as happier nations. I would think being a happier nation is what we should want yet the US is clearly not at the moment and seems headed even further from that goal.
Unfortunately, widespread discontent has not lead to productive discussions about how to address the problems of unaffordable housing, families living paycheck to paycheck, paltry retirement savings, and yawning budget deficits at all levels of government. The Trump Accounts (providing $1K for each newborn in an investment account untouchable until they reach 18) is a start but it does not address the currently less fortunate who want assistance from the government now. Politicians, particularly on the progressive side of the political spectrum, are proposing a variety of mechanisms to increase government revenues – the billionaires tax proposal in California and the pied-a-terre surcharge in NYC are two examples. The overall approach can be summarized simply – ‘tax the rich’.
I think that our country does need to make some major changes by which the less fortunate are provided with the opportunity to have a better life. When I hear and read about these proposals, however, I am dismayed because I believe they are one-sided and likely to prove ineffective. The prosperous ‘haves’ can resort to a simple, deflecting response – the government is wasteful and inefficient and more money will not lead to the desired outcomes.
What’s my point? It will take both sides to achieve balanced budgets, reasonable life outcomes, acceptable tax rates. Engagement from many groups, compromises. Stop simply asserting a need to ‘tax the rich.’ Effective strategy would suggest that proposals to increase revenues should be accompanied by commitments to achieve budget savings, reduce government debt, and operate more efficiently. Proposing revenue increases along with expense reductions, should gain greater engagement with everyone and hopefully start meaningful discussions about how to make effective changes. ‘DoGE’, a campaign focused on government efficiency, was the right idea. Unfortunately, it morphed into political theater with no meaningful results.
In a country as prosperous as ours, people shouldn’t want for food, shelter, affordable health care. But simply trying to ‘tax the rich’ is a non-starter. I want to hear the political class combine their insistence that the well-off need to pay more with a commitment to being focused on making the government more efficient. Promises to use technology to help the government spend less yet deliver the same services with specific goals on spending reductions. Equally, giveaways to the rich, who employ well-funded lobbyists and their own large political contributions to seek their selfish goals, must be eliminated (e.g. the billionaire owners of the Buffalo Bills getting $850 million to build a new stadium, privately owned by them and the NFL). A system that creates massive fortunes while many are unable to lead a decent, reasonable existence needs reform.
OK, I have climbed down from my soapbox. The link below is to an article highlighting the progress in reviving US rivers by removing unnecessary, obsolete, and failing dams. It is estimated that there may be at least 92,000 dams in the US, many of them small, unnecessary, even counterproductive. The benefits of their removal are many…take a look.