S&P 500 Index Hits Record High; JPMorgan Still Expects Rally to Continue

Similar trends have emerged in overseas markets, with stock indices in South Korea, Japan, and Taiwan all reaching record highs. Emerging markets have rebounded even faster than U.S. benchmarks. However, the extent of recovery varies across different overseas markets, with European indices underperforming the broader international market.

JPMorgan noted that the logic behind European equities' underperformance is clear: earlier this year, European markets rallied alongside the global trend and led performance, with valuations rising in tandem driven by optimistic and aggressive earnings expectations. Even before the onset of the energy crisis, the European economy and capital markets were already lacking resilience, with underlying risks becoming increasingly evident.

Currently, market concerns have shifted from valuation discrepancies to downward pressure on future earnings. Compared to the positive landscape of the U.S. stock market, Europe's performance is significantly lagging; the biggest shortcoming is its low weighting in technology stocks, missing the core engine of the recent U.S. equity rally.

On the other hand, although the S&P 500 index has returned to record highs, its valuation has retreated from its peak. At the end of 2024, the benchmark's one-year blended forward P/E ratio exceeded 23x. Today, that figure has fallen below 21x. The valuation rerating in the technology sector is even more pronounced.

The institution further pointed out that this round of market recovery is not merely a price rebound. Against the backdrop of geopolitical tensions involving Iran, forward earnings expectations have instead heated up significantly. Notably, the rebound trend had already taken shape before geopolitical risks eased. This suggests that the current rally is not driven by expectations of an improved situation, but rather by fundamental support as the core driver.

Among current S&P 500 constituents, approximately 25% have reported quarterly results, with about 83% of those companies exceeding earnings expectations—well above the five-year average of 78%. Revenue growth is also on track to reach its highest level since 2022, with 77% of companies surpassing revenue estimates, compared to a five-year average of 70%.

JPMorgan further analyzed that, given that both revenue and earnings are beating expectations with such strong momentum, the recent surge in stock prices to record highs indicates that current buying is supported by a solid conviction—namely, full confidence in U.S. corporate fundamentals. If the remainder of this earnings season performs as expected, it will mark the sixth consecutive quarter of double-digit earnings growth—the longest such streak since the recovery from the 2008 financial crisis. Strong earnings growth further validates that the current stock market rally is not a flash in the pan, but a powerful reflection of sustained strength in the technology sector and the index as a whole.

Looking ahead, the bank's analyst Jason Hunter further stated that while the recent influx of capital has pushed overbought conditions to their highest levels since late last year—particularly in growth and technology stocks—this rally has yet to exhibit typical signals of a market peak.

Hunter expects that as long as the S&P 500 Index remains above the key support range of 6,900 to 7,000, the bulls will continue to dominate. However, he also anticipates that the velocity of the U.S. equity rally may shift in the coming weeks: as the index approaches a critical resistance band between 7,100 and 7,300, the market may transition from a sharp, momentum-driven surge to a slower and more stable "slow grind" ascent. This pattern mirrors the price action at the end of last year, when the market continued to push higher but at a more measured pace.

Regarding risks, Hunter expects that unless the index falls below the deep support zone of 6,600 to 6,700, there is currently no major threat to the prevailing uptrend.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.