S&P 500 Records Built on Earnings Santoli Calls Over-Earned — SkimNews
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- S&P 500 has rallied more than 6% in 12 trading days since late July to fresh records in what Santoli calls a "Subtraction of All Fears" rally — eased worries over AI-investor punishment, a semiconductor bubble burst, and Federal Reserve rate hikes.
- Santoli argues the Q2 earnings bonanza may represent companies "over-earning," partly because tech giants' results were flattered by markups of their stakes in OpenAI and Anthropic, both of which need vastly more financing to meet AI infrastructure spending commitments.
- Earnings quality is further muddied by booked data-center buildout revenue whose expenses won't hit until future quarters, a one-time energy-sector surge tied to wartime supply interruptions, and easy comparisons against the "Liberation Day" chaos of Q2 2025.
- The S&P 500 now trades at roughly 20x forward earnings, down from 23x last October, while the S&P industrial sector trades at 25x P/E — higher than any time this century except the Covid profit crash.
- Macro Risk Advisors' John Kolovos sees the S&P 500 potentially "threading the needle" to 8300 (up 6-7%) by early next year, with momentum stocks extending their tactical rally and Chinese shares a Buy for willing investors.
- Citadel Securities' Scott Rubner sees a constructive August setup from retail rebuilding exposure, systematic funds keying off suppressed volatility, and corporate buybacks, but warns September's seasonality and fuller positioning could change the picture.
- 3Fourteen Research's Warren Pies cut equities to neutral after catching a 10% S&P 500 gain from mid-April, arguing the market is now pricing in too low a chance of a Federal Reserve rate hike.
- BCA Research's Martin Barnes projects the AI-driven profit-margin bubble will burst within the next year, alongside a return of bond vigilantes and a substantially weaker dollar over the next five years.
Why it matters: If the earnings that vaulted the S&P 500 to records are padded by AI-stake markups, deferred data-center costs, and energy windfalls — as BCA's Barnes forecasts will unwind within a year — the index's ~20x forward P/E becomes harder to defend. Investors who chased the 6% rally may find buying capacity already deployed before September's tougher seasonality hits.
Ask SkimNews
