Market Analysis: S&P 500 Needs Strong Earnings Growth or Fed Rate Cuts to Justify High Valuations

Odaily Planet Daily News: U.S. stocks are defying the odds and rising in 2025, now just a hair’s breadth away from their all-time highs. However, as the S&P 500 climbs higher, concerns about a valuation bubble are intensifying. Data shows that the index is trading at 22 times its projected earnings for the next 12 months, which is 35% above its long-term average. Among the 20 valuation metrics tracked by Bank of America strategists, the index appears overvalued on every single one. Kevin Gordon, Senior Investment Strategist at Charles Schwab, commented, “The current market level is sustainable, but we can’t be highly confident about where things go from here. Optimistic earnings expectations for the second half of the year may be too high, and with multiples near cyclical peaks, earnings will have to exceed forecasts.” In addition to earnings growth, strategists also noted that a significant rate cut by the Federal Reserve would be another way for the index to narrow the gap between fundamentals and market prices. (Jin10)