After a shaky start, investor confidence has propelled the S&P 500 to a record high of 6875 points, marking a 38 per cent rally since tariff announcements and an almost 18 per cent gain for the year. The US earnings season is progressing well, with nearly 80 per cent of reporting companies exceeding earnings expectations and providing positive guidance. Despite concerns about artificial intelligence and potential market bubbles, key indicators like Nvidia’s stock performance suggest continued market strength.
However, some analysts note potential risks. The S&P 500’s forward price-to-earnings multiple is elevated, and concerns linger about the US jobs market and private credit. Despite these concerns, economist Ed Yardeni has adjusted the odds of his S&P 500 target, now anticipating a potential ‘melt-up’ scenario where the index reaches 7000 points by the end of 2025 and 7700 points by the end of 2026 sooner than expected.
Yardeni believes that anticipated rate cuts by the US Federal Reserve, potentially starting as early as this week, are fuelling the market’s rise, even if the US economy may not necessarily need them. Bank of America strategist Michael Hartnett highlights the broader context of global rate cuts, noting a significant number in the past 24 months alongside a rise in US nominal GDP.
While acknowledging potential market noise and risks, analysts suggest the sheer volume of money injected by global rate cuts indicates the rally’s momentum may not be exhausted. Investors should remain aware of potential shifts in sentiment but also recognise the underlying factors supporting the current market surge.
