Market Analysis: S&P 500 needs big earnings growth or Fed rate cut to justify highs

Odaily Planet Daily News: U.S. stocks rose against the trend in 2025, just a hair's breadth away from their all-time highs. But the higher the S&P 500 index goes, the stronger the concerns about its valuation multiples becoming bubbly. Data show that the index's price-to-earnings ratio, calculated based on expected profits for the next 12 months, is 22 times, 35% higher than the long-term average. The index shows overvaluation on every one of the 20 such valuation indicators tracked by Bank of America strategists. Kevin Gordon, senior investment strategist at Charles Schwab, said: "The current level of the market is sustainable, but we can't have high confidence in the question of 'starting from here'. Optimistic expectations for earnings in the second half of the year may be too high, and coupled with multiples close to cyclical highs, earnings must exceed expectations." In addition to earnings growth, strategists also said that the Federal Reserve's sharp interest rate cuts would be another way for the index to narrow the gap between fundamentals and market prices. (Jinshi)