This week on Money & Investing, Mitch Olarenshaw and I unpack why the S&P 500 is smashing record highs while investors remain uneasy, breaking down the earnings data, capital spending and risks driving this disconnect.
1. Record Earnings Growth Is Fuelling the Rally
S&P 500 aggregate earnings growth currently sits at around 50% year on year, well above the already high 18% expectation. This is the primary catalyst behind the market’s push to record highs, though strip out Google and Amazon and that figure drops to a still impressive 28%.
2. Not All AI Earnings Are Equal
Microsoft’s results sent shares soaring while Meta’s earnings disappointed, despite both being AI exposed. The difference comes down to real cash flow versus spending without a clear return. Google’s approach, learning from Kodak’s mistake of refusing to cannibalise its own business, has positioned it as one of the stronger long term plays.
3. The Shift From Growth to Quality
Markets are moving from early cycle behaviour, where anything with momentum gets chased, into mid cycle discipline, where investors want to see demonstrable profit and cash return rather than growth for growth’s sake.
4. Interest Rates Are the Biggest Risk on the Table
The 10 year Treasury yield sits around 4.6% to 4.7%. If it pushes past 5%, borrowing costs rise and safer guaranteed returns start competing hard with equities. A new Fed chair and shifting rate hike expectations have added to the uncertainty.
5. Energy and Geopolitics Are the Real Inflation Threat
Tariffs haven’t driven inflation the way many expected. The bigger concern is energy, with the Middle East conflict pushing oil prices and shipping insurance costs sharply higher, a pressure that flows through to nearly every part of the economy.
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