S&P 500 hits record highs as earnings trump growth concerns

The S&P 500, Dow Jones, and Nasdaq have rallied to all-time highs this week, confounding expectations of a correction amid macro headwinds. Wall Street strategist Ed Yardeni expressed confidence the S&P 500 could eclipse 8,000 by year-end 2026, citing strong earnings as the primary driver. The rally has been selective: mega-cap tech and AI infrastructure stocks are outperforming, while small-cap and consumer discretionary names are lagging. Simon Property Group reported Gen Z shoppers are driving mall traffic, suggesting some resilience in consumer behavior despite low confidence readings.

The earnings-driven narrative is holding despite mixed fundamental conditions. Vodafone beat revenue estimates on its pivot to core European markets. Banca Monte dei Paschi beat profit expectations, signaling European bank resilience. However, some earnings misses are being masked: Jollibee Foods saw profit fall 39% on cost pressures; Hims & Hers reported a loss and missed sales estimates amid weight-loss drug competition; and Petrobras fell short despite favorable oil pricing because it maintained domestic price caps.

The Fed rate-cut narrative has shifted. Goldman Sachs and Bank of America delayed their Fed cut calls, pushing initial cuts from June into December, after April jobs data was stronger than expected. This repricing reduced near-term rate-cut hopes but also locked in a stable-rate environment that supports equity valuations. The VIXThe 30-day implied volatility of S&P 500 options. The 'fear gauge.' closed at moderate levels, and short-term volatility expectations are muted despite the Hormuz closure and Trump-Xi summit risks.

The sustainability of the all-time-high narrative depends on earnings beating estimates consistently through June, Fed communications remaining patient, and geopolitical risks not escalating into actual supply-chain or demand shocks. If energy costs compress margins for consumer-facing businesses, or if China growth disappoints at the Xi-Trump summit, the momentumThe empirical fact that winners keep winning over the medium term. could reverse. For now, the market is discounting a soft-landing scenario with stable rates, strong capex, and contained inflationThe rate at which prices rise across an economy..