Cautious optimism led stocks back to all-time highs. But are bulls becoming irrationally exuberant?

"Triumph of the Optimists" is a landmark history of investment returns during the 20th century. The story of past several weeks in markets could be called, "Redemption of the Cautious Optimists." From the start of August, after a startling weak jobs report, the markets locked into investors' preferred scenario: The Federal Reserve would soon lower interest rates — but not because the real economy is in need of urgent help. This allowed a somewhat extended equity rally as of the end of July to flatten out, cooling off overheated momentum stocks, offering relief to the lagging sectors, suppressing volatility, draining away some excess investor optimism and extending the S & P 500's run without as much as a 3% pullback beyond four months. This week's mix of elevated but as-expected CPI inflat