The S&P 500 has climbed more than 6% in 12 trading days to fresh record highs, but CNBC senior markets commentator Mike Santoli warns the earnings surge behind the rally could reflect companies "over-earning" rather than a lasting improvement. He points to profit margins and valuations that may struggle to climb further, while strategists offer differing views on how much further the rebound can run.
Three weeks into a rebound Santoli calls a "Subtraction of All Fears" rally, the market still has to prove the bounce reflects genuine belief rather than blessed relief. The S&P 500 is up more than 6% in 12 trading days to record levels, as fears over AI spending, a semiconductor bubble, and Federal Reserve rate hikes have eased.
Where strategists see the index heading
John Kolovos, head of technical research at Macro Risk Advisors, expects the S&P 500 can reach 8300, up 6-7% from current levels, by early next year, with some chop likely in late summer. He thinks momentum stocks can extend their tactical rally, and he views Chinese shares as a buy for investors willing to take that leap.
Not every signal is as constructive. Warren Pies of 3Fourteen Research cut his equities recommendation to neutral last week, reversing a mid-April overweight call that had caught a 10% S&P 500 gain over four months. He now believes the market is pricing too low a chance of a Fed rate hike.
Profit quality behind the record run
Santoli argues the reported profit bonanza may not be as clean as it looks. Results were flattered by markups on tech giants' stakes in OpenAI and Anthropic, by revenue booked for hyperscaler data-center buildouts whose costs will only show up in future quarters, and by a one-time energy-sector earnings jump tied to wartime supply interruptions.
The S&P 500 traded at 23 times forward earnings last October and now sits near 20 times, a level Santoli says may struggle to climb further given competitive pressure in AI and thinner tech free cash flow. The index's industrial sector alone trades at 25 times earnings, its richest level this century outside the pandemic-era profit collapse.
A longer-run warning on margins
BCA Research chief economist Martin Barnes ties the decades-long rise in profit margins to a shrinking labor share of national income, alongside record federal debt and dollar dominance. According to Martin Barnes: "Soaring federal debt, a resilient dollar, and record profit margins are unsustainable." He expects the AI-driven bubble in profit margins could burst within the next year.
Source: US Top News and Analysis
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