The Most Frustrating Rally: How to Profit From It

The Rally Nobody Wants to Believe In

The most frustrating stock market rally of 2026 has a defining characteristic: most people are missing it. While the NASDAQ 100 punches through price targets and semiconductor stocks break out to multi-month highs, retail sentiment sits firmly in the red. In one recent manufacturing survey, 69% of comments were negative versus 31% positive — yet new orders keep coming in. That gap between sentiment and reality is exactly where serious money gets made.

This isn't a story about blind optimism. It's a story about reading economic data correctly, sequencing your trades, and understanding why the crowd's frustration is your edge.

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The Economic Data Actually Supports This Rally

Ignore the noise and look at the numbers. Here's what the macro picture actually shows right now:

• Capital goods orders: Came in at 3.3% versus the 0.5% consensus expectation. That's not a rounding error — it's a signal.
• Employment Cost Index (ECI): Annualising at 3.6%, close to the Federal Reserve's preferred range of around 3%. Wages are rising without triggering a new inflation spiral.
• Continuing jobless claims: Hit their lowest level in 50 years.
• GDP: Holding at 2% growth when many economists were pricing in a left-tail risk scenario — a cliff-edge contraction that never came.
• Manufacturing PMI: The economy has now expanded for 18 consecutive months. New orders expanded for the fourth straight month after four consecutive months of contraction.

That last point deserves emphasis. Four months of positive new orders data after four months of contraction is a textbook reversal signal. If you were tracking this in real time, the inflection was visible in January. By April, the trend was confirmed.

The loudest bears in the comments sections are not looking at this data. They're reacting to geopolitical headlines — understandably so, given ongoing tensions — but headlines don't drive earnings. Orders do.

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Hardware Led. Software Is Next. Here's the Sequence.

Understanding the current market cycle means understanding the technology investment sequence:

1. Infrastructure buildout (2023–2025): GPUs, data centres, power infrastructure. Nvidia dominated this phase.
2. CPU and inference expansion (late 2025–2026): AMD, ARM, and Intel start catching up as AI moves from training models to running them at scale. This is where we are now.
3. Software monetisation (2026–2027): Companies that built AI-native products begin converting infrastructure spend into recurring revenue. This phase is just beginning.

The CPU shift is particularly telling. When large AI-focused companies start buying significantly more CPUs relative to Blackwell-class GPUs, it signals a move from model training toward inference — running AI products for real users at scale. That transition drives demand for AMD and ARM in ways the GPU narrative alone doesn't capture.

AMD has already broken through key technical levels. ARM has surged past previous resistance. Intel, long written off, is pressing toward $100. These moves are not random — they reflect real purchasing decisions being made by companies deploying AI products.

Software is the next leg. Companies like Atlassian are growing revenues at 25–31% year-over-year with gross margins above 85%. The cost of goods sold for a pure software business is structurally low. The challenge is R&D and sales and marketing spend, which compresses near-term profitability. But the balance sheets are strong, and the buyback programmes at many of these companies are outpacing stock-based compensation issuance — which matters more than most retail investors realise.

When a company issues $400 million in stock compensation but buys back $900 million in shares, the net effect is shareholder-friendly. Insider selling at software firms is largely employees liquidating equity to fund their lives — it's not a directional signal on the business. Insider buying, by contrast, is worth watching.

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What's Really Driving Amazon and Google's EPS Right Now

Here's a number that should change how you read tech earnings: Amazon's other income adjustments related to equity investments in private companies totalled approximately $12.3 billion in a recent quarter. A significant portion of that comes from its stake in Anthropic and other AI-adjacent private companies.

Google tells a similar story. Other income grew from roughly $11 billion to $37 billion year-over-year — driven substantially by gains from SpaceX and Anthropic positions.

This means a meaningful portion of the EPS growth you're seeing at the two largest digital advertising and cloud businesses on the planet is coming not from their core operations, but from private market equity stakes in AI companies. Their free cash flow tells a different story — Amazon, for example, ran deeply negative free cash flow while raising tens of billions in new debt to fund infrastructure.

This isn't necessarily bearish. Strategic investments in AI infrastructure are rational capital allocation decisions. But investors benchmarking these companies purely on EPS growth need to understand what's underneath the headline number. The core businesses are healthy. The EPS boost is partially synthetic, driven by mark-to-market gains on private equity holdings.

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Why Most Investors Are Sitting Out This Rally

The psychological dynamic of a frustrating rally is straightforward: people raise cash at the bottom, wait for confirmation, and then find themselves chasing prices that already reflect the good news.

In the current cycle, several factors compounded this:

• Geopolitical anxiety: Active conflict creates genuine uncertainty. Rational people take risk off.
• Rate fatigue: After years of elevated interest rates, many investors anchored to a thesis that high rates would eventually break something. They kept waiting for the break.
• Narrative lag: The positive economic data (ECI, capital goods orders, claims) takes time to filter into mainstream financial media. By the time the narrative shifts bullish, prices have moved.
• Sentiment surveys vs. actual orders: The ISM commentary was 69% negative — but the actual new orders index expanded. People say one thing and do another. Track what they do.

The practical implication: when sentiment surveys are deeply negative but hard economic data is positive, that divergence is a buy signal, not a warning sign.

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The Decade-Long Real Estate and Rate Thesis

Beyond the current stock market cycle, there's a longer-duration thesis worth examining: technological deflation will structurally push interest rates lower over the next decade.

The argument runs as follows. AI and automation drive sustained productivity gains that reduce input costs across the economy. This acts as a deflationary force on goods and services. Central banks, responding to below-target inflation, reduce rates. Some of this deflation gets offset by money creation and fiscal spending, but the net trajectory for rates over a ten-year horizon is lower.

If that thesis is correct — and the macro data from 2023 through 2026 has not disproved it — then the current window of elevated mortgage rates and reduced real estate transaction volumes represents a strategic acquisition opportunity. Fewer buyers mean less competition. Distressed sellers accept prices that don't reflect the long-term rate environment.

The specific playbook: acquire free-and-clear real estate (eliminating bank debt risk), use the asset base to fund software development, and position for the period when both real estate values and software multiples re-rate upward as rates decline. It's a barbell strategy — hard assets plus high-margin software — executed over a decade-long time horizon.

At 4.37% on the 10-year, yields are still elevated. That's not a reason to avoid real estate. For contrarian buyers with a five-to-ten year horizon, it's the point of maximum opportunity.

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Practical Takeaways for Ambitious Investors

Here's what the data and the current market structure actually suggest you should do:

• Don't fight the PMI data. Eighteen months of consecutive expansion and four months of new order growth is a strong foundation. The economy is not falling off a cliff.
• Sequence your tech exposure. If you missed the GPU trade, the CPU inference play is still in early innings. Software monetisation is the phase after that.
• Read earnings footnotes. The difference between core operating performance and equity investment gains matters. Amazon and Google are strong businesses — but understand what's driving EPS before you price it.
• Watch buybacks, not insider sales. Net buyback versus stock compensation issuance is a more reliable signal of management's confidence than executive selling alone.
• Be sceptical of commodity crowding. The gold and commodity rush that followed geopolitical uncertainty has likely already priced in most of the fear premium.
• Use sentiment divergence as a signal. When 69% of survey respondents are negative but new orders are expanding, the market is showing you its hand.

The frustrating rally continues precisely because most participants are waiting for permission to be bullish. The permission they're looking for — a ceasefire, a Fed pivot, a clean jobs report — may come. But the market rarely waits.

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Frequently Asked Questions

Why is this stock market rally described as "frustrating"?

Because the positive price action is happening against a backdrop of overwhelmingly negative public sentiment. Most investors raised cash anticipating a downturn, then watched prices recover without them. The frustration comes from being right about the risks but wrong about the market's response to them — a common outcome when economic fundamentals diverge from geopolitical headlines.

What does the shift from GPU to CPU demand signal for investors?

It signals a maturation of the AI infrastructure cycle. During the training phase of large language models, GPUs (particularly Nvidia's high-end chips) dominate. As companies move into inference — running AI products for actual users — CPUs from AMD, ARM, and Intel become proportionally more important. Increased CPU purchasing relative to GPUs is a leading indicator that AI deployment is scaling, not just development.

How much of Amazon and Google's recent EPS growth is from core operations versus investments?

A meaningful portion of recent EPS gains at both companies stems from mark-to-market gains on private equity stakes, primarily in Anthropic (held by both Amazon and Google) and SpaceX (Google). Amazon reported approximately $12.3 billion in equity investment adjustments in a recent quarter. This doesn't make the businesses weak, but investors should separate core operating performance from investment portfolio gains when valuing these stocks.

Is the long-term case for real estate still intact given current interest rates?

The case depends on your time horizon. At 4.37% on the 10-year Treasury, mortgage rates remain elevated relative to the 2010s. For investors with a five-to-ten year horizon, the thesis is that technological deflation structurally pushes rates lower over the coming decade — making today's transactions look attractively priced in hindsight. The counterargument is that inflation proves stickier than expected, extending the high-rate environment. The risk is real, but so is the opportunity for buyers with long horizons and the ability to avoid forced selling.

What should I look for when evaluating software company earnings?

Focus on four things: revenue growth rate acceleration (are they growing faster this quarter than last?), gross margin (above 75–80% signals a genuine software business model), net buyback position (buybacks minus stock-based compensation issuance), and free cash flow trend. Strong gross margins with accelerating revenue growth and a positive net buyback position is the combination that sustains multiple expansion in software stocks even during periods of near-term earnings losses.