S&P 500 Resilience Amid Global Challenges Driven by Strong Earnings Growth
The S&P 500 has shown surprising resilience this year despite numerous global challenges, including the Iran war, inflation concerns, a hawkish Federal Reserve, rising bond yields, and uncertainty around artificial intelligence. Despite these headwinds, the index is up nearly 12% as of September 19. The key driver behind its performance appears to be strong earnings growth. According to FactSet's John Butters, S&P 500 third-quarter earnings are projected to grow by 28.7%, marking three consecutive quarters with at least 25% annualized growth. The forward price-to-earnings ratio for the index is currently below its five-year average, making it more attractive from a valuation standpoint. Technology stocks have also seen their valuations reset significantly, with tech sector ETFs like State Street’s Technology Select Sector SPDR showing reduced multiples compared to last year. While risks remain—such as high borrowing costs and oil prices—the market may continue rising if earnings growth persists. Investors are advised that a declining price-to-earnings multiple amid strong earnings can signal upside potential, suggesting the market has not yet fully priced in future gains.
Topics: artificial intelligence earnings growth inflation S&P 500