Markets Rally to New Highs Despite Valuation Concerns

U.S. equities capped off the week with fresh all-time highs, shrugging off valuation warnings as the Federal Reserve’s dovish pivot reinforced bullish momentum. Tech leadership, optimism around AI-driven earnings, and rising expectations for more Fed cuts helped extend the S&P 500’s rally: now up nearly $15 trillion since April. While some market watchers anticipate a short-term breather, investor sentiment remains positive amid strong inflows and resilient macro data.

Key Headlines & Market Movers

• Fed Easing Without a Recession: The Fed’s decision to resume cutting rates in a growing economy has buoyed risk appetite. Chair Powell’s “meeting by meeting” language was cautious, but markets are pricing in nearly two more cuts this year. History supports gains during non-recessionary easing cycles, and strategists from UBS to Piper Sandler see further upside, though a near-term consolidation is expected.
• AI, Cloud, and Strategic Bets: Tech megacaps led again, helped by Nvidia’s $5B stake in Intel and reports of Oracle potentially landing a $20B cloud deal with Meta. Apple also rallied on iPhone 17 launch optimism. Meanwhile, Bank of America sees more runway for the “Magnificent Seven,” arguing valuations are elevated but not yet bubble-ending based on historical precedent.
• Earnings Expectations Turning Up: With Q3 earnings season approaching, a notable 22% of S&P 500 companies guiding above expectations is fueling optimism. Fewer negative preannouncements suggest improved corporate confidence. FedEx’s upbeat guidance and Apple’s strong product cycle highlight that some key sectors may still surprise to the upside.
• Valuations and Volatility - The Caution Flags: The S&P 500 is trading at 22x forward earnings, and volatility remains subdued, prompting warnings from JPMorgan and Nationwide that a cooling-off period is overdue. The Russell 2000’s pullback after a breakout underscores that not all areas of the market are participating evenly. Treasury yields nudged higher, but the move was orderly.

S&P 500 Sector Performance

Looking Ahead

Markets are heading into earnings season with strong tailwinds: AI hype, supportive Fed policy, and solid corporate fundamentals. However, stretched valuations, seasonal patterns, and geopolitical uncertainties (including U.S.-China trade headlines and TikTok developments) warrant watching. Near-term volatility could enter the picture, but the broader trend remains upward unless economic or policy shocks emerge.

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U.S. equities capped off the week with fresh all-time highs, shrugging off valuation warnings as the Federal Reserve’s dovish pivot reinforced bullish momentum.