The S&P 500 has pulled back from record highs as a cooling US economy overshadows a blockbuster earnings season. Record tech profits and a falling price-to-earnings ratio suggest the pullback may not last, even as traders watch Nvidia's results and the Jackson Hole symposium for the next signal.
The S&P 500 has retreated from its record highs amid concerns about a cooling US economy. Until now, the index's resilience and strong corporate results had driven it to new highs. But falling employment and retail sales, weaker consumer sentiment and slowing inflation now point to softer demand.
Tech earnings beat even the optimistic forecasts
In the second quarter, profits at tech giants rose 31%, beating an already optimistic forecast of 23%. The 31% figure is a record, and the 23% forecast ranks among the best outside post-recession recoveries. Companies drove the gains through higher productivity as more of them adopt AI. With about 90% of listed companies having reported, the S&P 500 is on track for its best half-year earnings-per-share performance since 2021.
Valuations ease even as the index climbs
Earnings growth is outpacing the broad index, so the forward P/E ratio has fallen from 26 at the start of the year to 22, a decline that suggests there is no bubble to speak of. As a result, Wall Street's consensus forecast for the index at the end of 2026 has risen to 7,894, with experts expecting at least 1% more upside. Analysts have also raised their earnings-per-share forecasts from 15% in January to 27%.
A possible Goldilocks scenario
Such figures have appeared only outside recovery periods that follow downturns; the S&P 500 has posted double-digit growth at the end of each of four consecutive years only a handful of times. The slowdown signals are a warning. However, if GDP growth falls only slightly, a so-called Goldilocks scenario could emerge — a slow but still strong economy paired with a Federal Reserve reluctant to raise interest rates.
Markets eye Nvidia and Jackson Hole
The VIX has fallen to its lowest level since late December, a sign that greed is dominating the equity market. Meanwhile, derivatives are pricing in modest daily gains for the S&P 500 through the end of August, not exceeding 0.8%. Nvidia's earnings report and the Jackson Hole Economic Symposium stand as the next events that could move the index.
Source: ActionForex
Trading involves risk.
Risk Disclaimer
