Michael Contopoulos, head of multi-asset macro investing at Janus Henderson Investors, says the market is nearing its top, but he won't say when the cycle will turn. His caution comes after the Federal Reserve voted 12-0 on Sept. 16 to raise rates by a quarter point, bringing the range to 3.75% to 4% — the highest in years. Traders, meanwhile, are pricing a 71% chance of another hike in October as of Sept. 24, according to market data.
What's driving Contopoulos's caution
Contopoulos isn't just watching the Fed's next move. He's tracking margin compression, slower earnings growth, wider corporate credit spreads, and an inverted yield curve as the signals that would mark a turn. For now, he's not calling a date. The market's climb has been steady, but the underlying signals he's focused on have started to flicker. Last Thursday, the 10-year Treasury yield hit 5.22% while the two-year reached 4.94%. That kind of yield curve inversion — short-term debt paying more than long-term — has historically preceded recessions, though Contopoulos isn't making that call yet.
At the same time, jobless claims fell to 197,000 in the week ended Sept. 19, one of the lowest readings since 1969. That's a double-edged signal: it suggests the labor market remains tight, which could keep the Fed hawkish, but it also means consumers are still earning, which supports spending. The tension between strong employment and rising rates is at the heart of the debate.
The bond market's warning signs
Elsewhere in fixed income, Japan's 30-year bond yield hit a record 4.2% last week. That's a notable move for a country that has kept yields suppressed for years, and it suggests global rates are pushing higher across the board. In the corporate credit market, most artificial intelligence (AI) debt sold in the past six to 12 months is trading below its issue price. That's a sign that investors who bought into the AI hype are now underwater, and it could signal broader stress in credit markets if it continues.
For Contopoulos, those are exactly the kinds of cracks he's watching. Wider credit spreads would indicate that lenders are getting nervous, and that could feed back into slower earnings growth and margin pressure. But he's not predicting a sudden collapse — just that the cycle is closer to its end than its beginning.
The case for more upside
Not everyone shares Contopoulos's caution. David Spika, a strategist at Turtle Creek, argues stocks could still rally 5% to 10% by year-end if oil prices keep falling. Lower oil would ease inflation pressures and give the Fed room to slow down, which would be a tailwind for equities. Spika's view isn't contrarian for the sake of it — it's based on the idea that the economy can handle higher rates as long as energy costs don't spike again.
Oil prices have been volatile, but if they trend lower, that would put money back in consumers' pockets and reduce input costs for businesses. Spika's argument is that the market may be underestimating the resilience of the consumer and the potential for a soft landing. The Fed's unanimous vote suggests policymakers are united in their inflation fight, but they're also data-dependent. If inflation cools faster than expected, the Fed could pause, and that would be rocket fuel for stocks.
What to watch this week
Key data this week — including inflation, economic growth, and payroll figures — will test both views. If inflation comes in hotter than expected, the Fed's October hike becomes more likely, and Contopoulos's cautious stance gains weight. If growth slows and inflation eases, Spika's rally call looks smarter. The numbers will also shape how traders price the next Fed move, which currently sits at a 71% chance of a hike.
For now, the market sits at a crossroads. The Fed has raised rates four times this year, and the labor market is still strong. But the bond market is flashing warnings, and credit conditions are tightening. Contopoulos isn't alone in thinking the end is near — he's just not ready to say when. Spika isn't alone either, betting that the rally has legs. The next few weeks of data will decide which side is right.
Investors will get the first clues when inflation data drops later this week. If the numbers come in hot, expect the 10-year yield to push higher and stocks to wobble. If they cool, the rally could extend. Either way, the debate between Contopoulos and Spika is about to get a lot more clarity.
