The S&P 500 has climbed to within a few points of its record high while forming a bullish pennant that points toward 8,000. At the same time, its CAPE ratio has reached 42, the highest since 2000, and Goldman Sachs has warned that investors may be overestimating how long above-average profits will last.
The S&P 500 jumped to 7,575, a few points below its record high of 7,620. The index has soared by nearly 20% from its lowest level this year, moving from $6,312 in March to its current level.
A pennant that points to 8,000
The rally has drawn a bullish pennant, a chart pattern that joins a vertical line to a symmetrical triangle. The index has climbed above the 50-day Exponential Moving Average and the Ichimoku Cloud, which signals that bulls remain in control. As a result, the benchmark could stage a strong breakout and potentially reach 8,000 by year-end.
Earnings support that push. Analysts expect earnings growth of 23.6%, according to a FactSet report, with technology and banking sectors leading the anticipated outperformance. Micron said its revenue jumped by 300% in its third quarter.
The valuation warning
But the technical picture runs ahead of a stretched valuation. The cyclically adjusted price-to-earnings ratio has soared to 42, its highest level since 2000 and far above the 2009 low of 14. Goldman Sachs warned that there is a risk that investors may be overestimating how long above-average profits will last, especially for companies supplying AI infrastructure.
The next test comes quickly. Major bank results from JPMorgan, Goldman Sachs, and Morgan Stanley begin next week, followed by reports from Meta Platforms, Amazon, and Microsoft. Those numbers will show whether the earnings that justify a CAPE of 42 are real.
Source: Benzinga
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