The S&P 500 notched its 18th record close of the year on insatiable investor demand for tech names. The IPO of chipmaker Cerebras was so heavily subscribed that buyers scrambled for shares in the secondary market — a dynamic that could spill over to blockbuster listings from SpaceX, Anthropic, and OpenAI and lift the broad index further.

Unlike commodity and FX markets, equities are largely ignoring rising geopolitical risks and a shift in expected timing for the first Fed hike (moved from March to December after strong import prices and retail sales data). Bulls on the S&P are captivated by a 27% rise in corporate profits in Q1 versus Wall Street's early-season expectation of 12%.

Profit margin dynamics

Margins have recorded double-digit growth for a sixth consecutive quarter and are forecast to jump by 22% by year-end, well above March's 14% estimate. Coupled with a 13.9% year-on-year expansion in margins over the last 12 months, this provides a solid fundamental underpinning for the S&P 500 rally.

Flows also support the move: EPFR Global reports global investors have put an average of $14bn into US equities each week over the past 12 weeks. That is roughly half the pace of the December 2024 peak. Adjusted for the S&P's rally, it is about one-third, meaning that there is still plenty of capital available to buy US equities. On that basis, talking about a market bubble seems premature.

Capital flows into US and global equities

When investors get nervous about the S&P 500's apparent disregard for geopolitical risks and the rising probability of monetary tightening, quantitative metrics often provide support — and for now, they are working in buyers' favor.

That said, there is a fly in the ointment. A quarterly survey by the National Association for Business Economics found that only 13% of respondents expect further expansion in profit margins, while 31% anticipate that margins will decline due to higher input costs.

Investors are concerned that rising energy prices linked to the Middle East conflict will erode future corporate earnings for constituents of the broad market index and, in turn, weigh on fundamental valuations.

Technically, the S&P 500 chart shows an upside breakout through key pivot levels at 7,430 and 7,460, which now act as primary support levels. As long as the price stays above those levels, the tactical bias remains buy-the-dip toward the previously stated target of 7,700.