Yimin X
Founder of YX Insights, Ex-FX/Rates Market Maker
The S&P 500 has a sturdier base as the average stock lifts it despite falling chip shares, but tighter funding and the Fed limit near-term relief. The equal-weight index is up 4.6% this month against SPY's 0.9%; the Treasury cash balance rose to $1.021 trillion, draining bank liquidity, and SOFR is 5bp above fed funds. The Fed's hold helps equities, but its stronger activity assessment and two hawkish dissents cap the relief, especially for rate-sensitive shares. x.com x.com x.com
Strong corporate profit margins may make the S&P 500 better value than traditional P/E ratios suggest, despite elevated stock prices. Per Bloomberg, its P/E-to-profitability ratio is at its lowest in nearly 14 years, last seen around 2012. Wall Street might be overlooking something important. x.com
US large-cap equities do not look like a bubble at current forward valuations. The S&P 500 forward P/E is below both its five- and ten-year averages, while tech and momentum have suffered their worst five-month decline by far. x.com
The S&P 500's elevated P/E masks concentration in just a few stocks, making index exposure less appealing than selective stock picking for risk and reward. Its P/E is well above the ten-year median; digging into individual constituents looks more sensible than buying all 500. x.com
S&P 500 stocks look cheap relative to expected earnings as forecasts grow faster than share prices. Forward P/E has fallen below 19, its lowest since 2023 and slightly below its 10-year average, despite the index nearing all-time highs. Goldman Sachs' earnings beat, with net income up 29% year over year, suggests earnings support extends beyond AI. x.com
The S&P 500 is not in a bubble. At a forward P/E of 19, it sits just above its long-term average even as it presses new highs. x.com
The S&P 500 rally is a concentration bet because earnings growth is coming from very few companies, while AI productivity gains are not spreading across the broader economy. Nvidia and Micron drive 34% of expected Q3 earnings growth, and ten companies account for two-thirds. Apollo's revenue-per-worker chart shows gains for the Magnificent Seven but little for the other 493 S&P 500 companies; most stocks that reflect the broader economy are down. x.com x.com x.com
Rising S&P earnings revisions and a Nasdaq valuation far below the 2000 bubble level argue against a bull trap in US large caps. Nasdaq trades at 18x forward earnings versus over 80x in 2000. Positive breadth divergences, record short ETF exposure and put volume, and semiconductors waking up add to the case. In all 19 post-midterm instances cited, markets were very green over the following 12 months. x.com x.com
US stocks are getting cheaper even as they rise, because earnings are booming and P/E multiples are declining, making this the opposite of a bubble. x.com
US large-cap stocks are frothy and now need years of earnings to validate today's prices, even though the rally is not irrational. Per FactSet, S&P 500 earnings are up about 28% versus 13% expected, but the Shiller P/E is near 42, close to 1999-2001 extremes. Per @KobeissiLetter, leveraged ETF assets hit a record $177B and the leading-to-coincident indicator ratio of 0.84 matches the 2008 low; per @charliebilello, 90+ day delinquencies hit 13.1% for credit cards and 5.6% for auto loans. x.com … Show more
US large-cap stocks are not in a bubble, as S&P 500 EPS growth set against nominal and real GDP growth shows. That holds even as stocks slide with bonds, oil heads higher and the 10-year yield reaches 5.2%, its highest since 2007. x.com