Sykodelic
Crypto Analyst, Macro Specialist, Creator of Syko Therapy Newsletter
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.comÂ
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.comÂ
US large-cap equities are vulnerable because earnings have not caught up with total market capitalization. The market is farther from its 200-week moving average than at any point in 18 years, and cracks are starting to show; staying bullish ignores these risks. Rate hikes remain possible, oil is still high, and yields may climb again, so now is the time for caution. x.com x.comÂ
US equities are in a remarkably strong earnings environment, with S&P 500 sales and earnings revisions for 2027 surging. Markups on equity investments don't explain it, since sales wouldn't reflect them and these are 2027 estimates. Breadth is also fairly strong, so stripping out the mega caps, as @EcoDogFanJM suggests, isn't warranted. x.com x.comÂ
Strong corporate earnings make weekend crash panic a contrarian buying opportunity in US large-cap equities. Most individual stocks have already gone through bear markets despite the S&P 500 nearing record highs; weekend social-media panic rarely leads to a genuine economic downturn and instead offers long-term investors an attractive entry point. x.comÂ
The S&P 500 looks set to roll over because it skipped the retest that has followed every breakout for six years. Each time it broke to all-time highs, ran into price discovery, then topped and retested prior highs before starting over; this time there was no retest, while bond yields are soaring and war is driving them higher. A correction comes every cycle, more likely than not, though an 8% drop would be a pullback rather than a crash. x.com x.comÂ
US stocks follow earnings, and earnings are surging in the earliest days of AI adoption, so this isn't a market to hide from despite a possible Fed hike. Kalshi puts a hike this month at a record 60%. S&P 500 EPS grew 53% in Q2, and even without Amazon and Alphabet's investment gains it was the biggest jump since fall 2021. Guidance raises outpace cuts nearly 2 to 1, and the Atlanta Fed tracks 4-5% GDP growth. High beta could keep fading, and the rest of the year could be stagnant. x.comÂ
Improving breadth and GPUs massively outrunning depreciation costs put US-equity risk/reward heavily in bulls' favour. Some 59% of S&P 500 stocks are above their 50-day average; the Nasdaq 100 is positive over five trading days, and small caps bounced off their 200-day average. Buy gradually, as the selloff may not be completely over. x.comÂ
High debt and rate hikes make a big US equity correction likely. Warsh said nothing useful despite hot CPI and PPI after two weeks of hawkish rhetoric, while the rest of the Fed fence-sits. A debt crisis is incoming, and some funds will blow up soon. Big caps are the last leg; the bigger correction could be something like 20%. It is not a good time to buy dips. x.com x.com x.com x.com x.com x.com x.comÂ
Broader participation, earnings growth and lower multiples support US equities into year-end, with seasonality also favorable. The equal-weight S&P rose 1.95% this week while the cap-weighted index slipped 0.05%; EPS is up 38% so far and multiples are down 17% year to date. The 10-year yield fell 41 basis points. x.comÂ