This Isn’t Your Father’s S&P 500. Don’t Worry About Valuations.
While the onus is on companies to beat earnings projections after the index printed a fresh record, we have the right cohort of companies to get the job done.
Where to next?
Photographer: Spencer Platt/Getty Images
The S&P 500 Index hit an all-time high on Friday, punctuating its 38% return from the trough in October 2022. Much of the exciting rally has reflected an expansion of forward price-earnings ratios, and there’s a broad sense that management needs to start putting up the profits to justify current valuations. I suspect that corporations — and seven in particular — are up to the challenge.
The run-up in valuations over the past few months has been driven by a decline in government bond yields, which — among other things — boosts the relative attractiveness of equities in the eyes of investors. That tailwind has faded with markets having front-run the Federal Reserve’s expected policy rate cuts this year.