The S&P 500's rally to record highs may be driven by temporary factors — CNBC
The S&P 500 Index rose more than 6% over 12 trading sessions and reached new record highs. At the same time, CNBC columnist Mike Santoli cautioned that the market rally may largely reflect a easing of investors’ previous concerns rather than a sustained improvement in fundamentals.
The market was buoyed by strong growth in cloud services, as reflected in the earnings reports of major tech companies, as well as a decline in their valuations. This contributed to a rebound in the stocks of the so-called Magnificent Seven. Semiconductor stocks have recouped just under half of their previous 30 percent decline over the past five weeks. Expectations of further Fed rate hikes also diminished following moderate inflation data and weaker employment and retail sales figures.
According to Santolli, strong second-quarter corporate results may be partly attributable to temporary factors. Among these, he cited the revaluation of tech giants’ stakes in OpenAI and Anthropic, as well as the recognition of revenue from data center construction, while the associated costs may be reflected in subsequent quarters. Additional factors included a one-time increase in energy sector profits due to wartime supply disruptions and a comparison with the unfavorable results of the second quarter of 2025.
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The forward P/E ratio of the S&P 500 index, which reached 23 last October, currently stands at around 20. Santolli believes that its further growth may be limited due to competition in the field of artificial intelligence, a lack of significant free cash flow in the technology sector, and the more capital-intensive nature of these companies’ businesses. According to the review, the S&P 500 industrial sector is trading at a P/E ratio of 25.
John Kolovos, head of technical research at Macro Risk Advisors, forecasts that the S&P 500 could rise to 8,300 points early next year, implying a further 6–7% gain. In contrast, Warren Pace, co-founder of 3Fourteen Research, has moved equities to a neutral weighting in his recommended model, believing that the market is underestimating the likelihood of a Fed rate hike.
