S&P 500 Trends and Market Insights
The S&P 500 index hit 7,500 on May 14 for the first time and has since lingered around that level. It appears to be moving with its 50-day moving average. A drop of 6.0% could bring it down to the 200-day moving average. We’ve observed similar patterns before—like in late 2024 to early 2025 and again from late 2025 to early 2026. In both instances, we experienced a sideways consolidation before a decline, which ultimately drew in bullish buyers. We think this trend could hold until September, and our target is to reach 8,250 by year’s end.
Let’s break this down:
1. Stock Market Performance
This year, the leadership within the S&P 500 has transitioned from the notable Magnificent 7 to the more diverse Impressive 493. The Magnificent 7 saw a slight dip in June but has shown some recovery in July. Interestingly, the broader S&P 493 Composite Index has actually outperformed the Magnificent 7 so far this year.
In recent developments, S&P 500 Value stocks have outperformed S&P 500 Growth stocks. This is partly due to exceedingly high growth earnings expectations; just meeting them might even disappoint investors, while value stocks don’t face that issue.
The shift in market leadership is clear across the S&P 1500 sectors. Since mid-May, more defensive and lower-priced sectors have led the way, with the S&P 600 Healthcare up by 18.7% and the S&P 600 Consumer Discretionary gaining 14.4%. Meanwhile, the S&P 500 itself is down only 0.6% in that same timeframe. However, this modest number hides significant disparities among individual stocks, with the Magnificent 7 down by 5.7%. The tech sector appears to be losing steam, perhaps due to a lack of new innovations and some fatigue around AI. Additionally, semiconductors, which have been heavily traded, are losing momentum, with SOXX dropping by 20.3% since its peak on June 22.
2. Current Earnings Season
Analysts now expect second-quarter EPS growth to hit 22.9% year-over-year—a modest increase of 1.3% just this past week. Q3 and Q4 forecast also look promising.
When looking at a like-for-like basis, the Q2 earnings growth prediction is at 26.0%. This figure is significantly influenced by the energy sector due to the war’s impact on prices. The tech sector has shown steady revenue growth, yet healthcare seems to be struggling despite its strong stock performance last week, which was largely driven by financial results. Notably, Goldman Sachs and JPMorgan both surpassed EPS estimates considerably last week.
3. Revenue, Profits, and Profit Margins
For this year, the consensus EPS estimates for S&P 500 companies have remained flat, while projections for 2027 are trending upwards, exceeding $400. Futures returns, an average measure, also reached historic highs last week, driven by expectations converging towards 2027 as we move through 2026.
S&P 500 forward EPS has reached unprecedented highs and has accelerated recently. Generally, expected earnings predictions are seen as reliable indicators during economic upturns, though less so during downturns. Given the current economic resilience, these forecasts help us realistically gauge the direction of earnings for the next year.
If there’s a bubble in the market, it likely resides not in valuations or earnings but in profit margins. Last week, futures returns peaked at 16.1%, a noteworthy increase.
Eighty-nine point four percent of S&P 500 companies reported positive three-month earnings growth—a figure that historically aligns with earnings peaks—indicating potential for further rotations within a strengthening bull market.
4. Credit Indicators
The yield on 10-year U.S. Treasury bonds has stabilized around 4.50%, fitting neatly within the old normal range of 4.00% to 5.00%. Corporate high-yield credit spreads have remained tight, even amid concerns regarding private credit. This stability has helped keep the S&P 500 VIX index fairly contained.
