LIVE MARKETS-S&P 500 has been driving to new highs, but how much gas is left in the tank?

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S&P 500 HAS BEEN DRIVING TO NEW HIGHS, BUT HOW MUCH GAS IS LEFT IN THE TANK?

It's been about a week since Fed Chair Powell's much anticipated Jackson Hole speech, which pushed up September rate cut odds and drove a big jump in U.S. stocks.
In fact, on Wednesday, the S&P 500 index .SPX scored its 19th record close so far this year.
However, to Scott Wren, senior global market strategist at the Wells Fargo Investment Institute (WFII), what really matters now is just how much higher the benchmark index can climb.
According to Wren, valuation in terms of P/E, at just over 25x trailing 12-month earnings, is well above the longer-term 35-year historical average of 19.5x.
He admits that trying to call an SPX top solely based on valuation is no easy feat.
"This strategist can remember back in March 2000 when valuations were well above the historical average. Just like back then, a new technology was driving gains (the internet then, Artificial Intelligence now) and a relatively small number of large-cap companies were carrying the market higher," writes Wren in his weekly market commentary out on Wednesday.
He adds that the difference now is that mega-cap names propelling the market higher have robust products, revenues, and cash flows along with healthy balance sheets.

Meanwhile, underlying earnings fundamentals have been so good that he says Q1 and Q2 SPX earnings grew more than double the expected rate coming into the reporting season, which was not the case at the turn of the century.
In any event, WFII expects increased volatility in the coming months, which could present a buying opportunity for long-term investors.
"And while the index is trading close to the midpoint of our target range for the end of this year (6,400), our analysis suggests we could see the SPX trading in the 6,900-7,000 range by the end of 2026." (The S&P 500 is last around 6,490).
Wren advocates portfolios remain overweight U.S. large- and mid-caps, with WFII's most preferred sector being financials, while also favoring utilities and technology.

(Terence Gabriel)

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