The Four Pillars of the Rally — An Updated Assessment

By John Lau, CPA, CFP®

March 1, 2026 – For much of the past year, the S&P 500 advance has been supported by what I’ve called the Four Pillars of the Rally:

1. AI Enthusiasm
2. Stable Economic Growth
3. Ongoing Fed Rate Cuts
4. Tariff Clarity

In recent weeks, each of these pillars has come under varying degrees of stress. That does not mean the bull market is over. But it does mean the environment is evolving — and expectations need to adjust accordingly. Let’s update each pillar.

Pillar 1: AI Enthusiasm

The tone around AI has clearly cooled. Recent headlines — particularly in software — have weighed on sentiment. That has led some to suggest that the AI-driven bull market is over.

In my view, that conclusion is premature.

While enthusiasm has moderated, earnings expectations have not meaningfully reversed. Much of the projected 2026 EPS growth — pushing expectations above $300/share — remains underwritten by AI-driven productivity and capital spending.

Until we see widespread earnings estimate reductions, AI remains structurally supportive of the longer-term bull case.

Bottom Line: Intact long term. Headwind short term.

Pillar 2: Stable Economic Growth

Economic growth has been the quiet hero of this market.

Despite political noise and global tensions, the U.S. economy remains stable. That stability is supporting a healthy rotation out of concentrated AI/mega-cap exposure and into more cyclical sectors.

In a “run-hot but not overheating” economy, industrials, financials, and cyclicals can perform well — and that diversification is stabilizing the broader market.

For now, this is the pillar doing the most work.

Bottom Line: As long as economic growth remains stable, the market has an important fundamental anchor.

Pillar 3: Ongoing Fed Rate Cuts

There is political drama surrounding the Fed, but markets continue to expect additional rate cuts — possibly two more. Yes, we are likely closer to the end of the easing cycle than the beginning. But even a late-cycle rate cut remains accommodative.

Bottom Line: Rate cuts are no longer a powerful tailwind — but they are still a tailwind.

Pillar 4: Tariff Clarity
The Supreme Court decision limiting IEEPA tariffs removed one layer of uncertainty. At the same time, the administration retains other statutory pathways.

However, the market’s working assumption is this:

Shock tariffs that would materially damage economic growth are unlikely to persist.

Repeated political reversals and the affordability narrative suggest that extreme policy actions would be softened if they materially threaten markets or consumers.

Bottom Line: Markets believe catastrophic tariff escalation risk is low — and that belief supports valuations.

So, Where Does This Leave the Market?

When we step back and look at the full picture, the market today is not facing a collapse of its foundation. Instead, it is navigating a period where the bullish case has softened but not broken.

Two of the pillars — AI enthusiasm and Fed rate cuts — are clearly less forceful than they were. AI sentiment has cooled, and the Fed is likely closer to the end of its easing cycle than the beginning. That naturally removes some of the easy momentum that powered markets higher over the past several years.

But those pillars have not been destroyed. Earnings expectations remain elevated. Rate cuts are still expected. Economic growth remains stable and continues to act as an anchor. And while tariff rhetoric persists, markets do not currently believe that economically damaging “shock” policies are likely to stick.

What we are experiencing now appears less like the start of a structural bear market and more like digestion — the market recalibrating expectations after an extended run.

That distinction matters.

It means this is not an environment that calls for wholesale de-risking or abandoning equity exposure. Markets rarely move in straight lines, and periods of consolidation are often necessary before the next leg develops. Attempting to time an exit and a re-entry introduces its own risk — particularly if what we are witnessing is simply a pause rather than a reversal.

At the same time, it would be unrealistic to expect another effortless 20% year. The path forward is likely to be bumpier. Leadership may broaden. Sector rotation may continue. Volatility may rise.

For investors — and especially for retirees — this environment reinforces the importance of diversification, disciplined allocation, and tax-aware strategy rather than emotional reaction.

The outlook would turn materially more negative if one or more of the pillars were truly broken — if earnings expectations rolled over decisively, if economic growth deteriorated meaningfully, or if policy uncertainty escalated in a way that materially impaired the economy. At present, those conditions are not in place.

In short, recent volatility is a symptom of a weakening bullish case — not a defeated one. The market’s foundation has cracks, but it has not collapsed.

And in environments like this, discipline tends to be rewarded more consistently than dramatic action.