S&P 500's twin boom in prices and profits may signal leaner returns ahead
SPY•A Ned Davis Research report says the S&P 500 is 85% above its long-term trendline, while earnings are 66% above theirs, levels that may limit future returns.
1. Prices and earnings stretched
The S&P 500 stands 85% above its long-term trendline dating back to 1925, a level exceeded only in the late 1920s and around 1999-2000, Ned Davis Research chief U.S. strategist Ed Clissold wrote. The report says that when the index has been more than 30% above trend, it has historically risen at an annual rate of 1.1%.
2. Earnings reach historic levels
As of July 31, earnings per share were 66% above their long-term trendline. Including consensus estimates, earnings are expected to be 92% above trend by March 2027, the highest level since 1930, the report said.
3. Long streak above trend
The firm said the current 25-month streak of prices and earnings both at least 30% above their trendlines is the longest since the late 1920s. It cited a limited time in recession over the past 17 years, tariff refunds and unrealized gains in equity investments as factors behind elevated earnings.
