June 29, 2025

QuickTakes

MARKET CALL: New Highs Suggest Stock

Market May Be Back In Meltup Mode

The S&P 500 rose to a new record high on Friday, slightly exceeding its previous peak on February 19 by 0.5%. The bull market that started on October 12, 2022 is alive and well following the 18.9% correction from February 19 through April 8. During that period, the stock market sold off on Trump's Tariff Turmoil (TTT) as well as concerns that China's DeepSeek was bad news for US technology companies, especially the ones spending the most to build AI infrastructure. Both those concerns abated after April 8, and the bull market resumed. Trump started to moderate his stance on tariffs on April 9, and AI companies reiterated their commitment to spend tens of billions of dollars on AI capital investments during April's Q1 earnings season.

Also boosting the S&P 500 is the record high in S&P 500 forward earnings (chart). It had peaked on April 4, two days after President Donald Trump announced his proposed reciprocal tariffs on America's trading partners. It briefly dipped through April 25 and has rebounded since then.

Almost all of the correction was attributable to a drop in the S&P 500's forward P/E (chart). It peaked at 22.2 at the start of the correction and bottomed at 18.1 at the end of the correction. Now it is back to 21.9! It has been a P/E-led, V-shaped correction lasting 48 days. That's a relatively normal correction.

By the way, industry analysts have stopped lowering their S&P 500 earnings estimates for Q2, Q3, and Q4 in recent weeks, following significant downward revisions at the beginning of the current quarter (chart). They are currently expecting Q2 earnings per share to be up just 3.7% y/y. We expect that the actual Q2 results will surpass their expectation, as happened during Q1.

In recent weeks, the breadth of S&P 500 forward earnings has stopped falling (chart). During the June 27 week, 69.9% of S&P 500 companies showed positive three-month percent changes in their forward earnings, up from 57.4% during the week of May 8.

We have been recommending overweighting the S&P 500 Information Technology, Communication Services, Industrials, and Financials sectors since the start of the bull market. They have been the four best performing sectors of the S&P 500 since then (chart). We did have one clunker: We had also recommended Energy, but gave up on it late last year.

So far, the current bull market looks like a normal one, with the potential to match the returns of some of the best bull markets since the mid-1960s (chart). We are still targeting 6500 on the S&P 500 stock price index by the end of this year and 10,000 by the end of the "Roaring 2020s" decade. It's a bit hard to believe, but the main risk at this time may be a stock market meltup, i.e., a speculative bubble. That's where we were only four and a half months ago when the latest correction started!

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