New S&P high raises questions on longevity - Sevens Report

Investing.com -- The S&P 500 closed at a new all-time high last week in a rally propelled by easing geopolitical tensions, resilient economic data, and growing expectations for interest rate cuts.

The index rose 3.48% on the week, lifting its year-to-date gain to 5.65%. But the strength of the rally has prompted questions about how sustainable it is, especially with markets pricing in a dovish policy shift and global risks still in play.

According to financial research firm Sevens Report, the climb was underpinned by confidence that the administration “won’t do anything to materially hurt the economy,” even as tariff threats and aggressive rhetoric persist.

The report emphasized that, while President Trump’s approach may appear volatile, markets perceive it as a negotiation strategy that avoids real economic damage.

“The No. 1 reason the S&P 500 has returned to the February highs is because the market has confidence that the administration won’t do anything to materially hurt the economy and that belief is the foundation upon which the Q2 rebound was built,” it said.

Another driver was the absence of stagflation concerns. “The market is not afraid of tariff-driven stagflation anymore,” the report said, pointing to cooling housing and energy prices helping to offset inflationary pressure.

At the same time, growth data has remained solid, including June’s flash PMIs, which both beat expectations.

Tech shares once again played a central role, with AI enthusiasm continuing to lift the sector and drive broader market gains. Meanwhile, valuations—while stretched on 2025 earnings—appear more reasonable when measured against 2026 estimates.

“Analysts are quickly pivoting to using 2026 earnings estimates, which are between $290-$300/share. Based on that valuation math (6,141/$295), the S&P 500 is trading at just 20.8X earnings, a reasonable number,” the firm noted.

Still, the outlook remains cautious. Sevens Report points out “growing signs that the labor market is losing momentum” could quickly derail the rally if a growth scare emerges.

Jobless claims showed mixed signals last week, and upcoming data releases—particularly the jobs report and ISM PMIs—will be closely watched. A string of weak figures, especially back-to-back sub-50 PMI readings, could raise red flags about economic direction.

While momentum and policy optimism have pushed equities higher, the report cautioned that this market “is making no allowances for a growth scare.” Investors now face a short holiday week that could prove pivotal in testing just how durable this rally is.