The S&P 500 Index futures continued soaring today, May 7, reaching their all-time high, despite the existing geopolitical tensions in the Middle East. It rose to $7,390, up sharply from the year-to-date low of $6,352. Here’s the top reasons why the index is in a strong bull run.
SPX Index chart | Source: TradingView
S&P 500 Index futures have been boosted by corporate earnings
Corporate earnings have been the top drivers of corporate earnings this year. Data compiled by FactSet shows that the average earnings growth so far was 27%, much higher than the median estimate of 13%.
Most companies have released stroke earnings that have beaten the estimates. For example, top banks like Goldman Sachs and Morgan Stanley released strong numbers, helped by their trading divisions, which benefited from the war volatility.
Technology companies like Microsoft, Google, and Meta Platforms released strong numbers and boosted their AI spending goals. The top four largest American companies reported that they will spend $725 billion in capex this year, a higher estimate than expected.
Many companies have boosted this forward earnings estimates during the ongoing earnings season, pointing to resilient demand from American customers.
AI boom continues
The S&P 500 Index futures have also jumped to a record high because of the booming AI sector. Analysts now believe that the fears of an AI bubble are not real as companies like Anthropic and OpenAI have continued to ship major upgrades.
Anthropic, in particular, has continued to launch upgrades that will disrupt some industries. For example, its coding features explains why some companies like PayPal and Block have announced large layoffs this year.
A look at the top gainers in the S&P 500 Index this year shows that most of them are in the AI industry. For example, Sandisk stock has jumped by 477% this year and is up by 4,045% in the last 12 months.
Intel stock has jumped by 203% this year as its turnaround strategy has accelerated. For example, companies like Tesla, Apple, and Google have hinted that they will use its chips in the AI industry.
Seagate, Western Digital, and Micron stocks have soared by over 125% this year as demand for memory chips has continued rising this year. Most of their products have been sold out, which has pushed their prices higher in the past few weeks.
The other top gainers in the S&P 500 Index this year are companies like Lumentum, Vertiv, Corning, Advanced Micro Devices (AMD), and Dell.
Hopes that the war will end
The ongoing performance of the S&P 500 Index futures mirrors what has always happened whenever there is a major black swan event in the US. In most cases, the stock market normally plunges after the event starts and then rebounds.
A good example of this is what happened on Liberation Day last year when Trump launched his trade war. At the time, the S&P 500 Index plunged sharply in April and then rebounded to a record high in the following month.
Similarly, the index plunged at the onset of the COVID-19 pandemic and then rebounded to a record high as it continued. In other words, investors embrace the new normal once a major event starts.
Looking forward, chances are that the ongoing S&P 500 Index boom will accelerate in the coming months. We can’t see any major risk that will push it lower, especially now that it is trading at a discount. Data shows the it has a forward price-to-earnings ratio of 20, which is in line with the five-year average.
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