By Daniela Hathorn, senior market analyst at Capital.com
Hopes of a ceasefire in the Middle East have provided fresh fuel for risk appetite this week, lifting global equities while simultaneously pushing oil prices lower as traders unwind the geopolitical risk premium that had kept crude elevated. The move has landed on already fertile ground: US equities were advancing into this catalyst, carried by an earnings season that is delivering at a level few anticipated at the start of the year. S&P 500 earnings growth is tracking close to 30% for the quarter, led by the big technology names, and last night AMD added to that momentum with quarterly results that beat on virtually every metric. The AI trade, which had cooled through much of the early part of the year, is showing signs of revival, with semiconductor and infrastructure plays catching a bid as investors reassess the scale and durability of capital expenditure flowing into the theme.
The fundamental case for this re-rating is not without substance. Earnings growth at these levels is not a narrative; it is a number, and it is justifying a degree of multiple expansion that might otherwise look stretched. Crucially, valuations across the index are less extreme than they were at this point last year, which provides some insulation against the charge of irrational exuberance as markets are running hot, but they are not obviously running ahead of reality. The caveat worth watching is concentration: a disproportionate share of this quarter’s growth is being generated by a handful of names, and the broader index remains exposed to any reversal in sentiment around the mega-cap technology cohort. A ceasefire that holds and an earnings season that delivers are powerful supports; the question is how much of both is now in the price.
S&P 500 daily chart
Past performance is not a reliable indicator of future results.
