Some Experts Say Stocks Still Look Cheap—Even With the S&P 500 Near Its Record High

The S&P 500's P/E ratio has fallen 11% year-to-date even as the index remains near record highs, indicating earnings growth has outpaced share-price gains. The index is on track for more than 30% year-over-year Q2 earnings growth, with 87% of constituents beating EPS estimates, while analysts see potential for over 20% growth in both Q3 and Q4. Upside is tempered by concerns over AI infrastructure spending, elevated oil prices and Treasury yields, and the prospect of a Fed rate increase.

Analysis

The important signal is not a lower index P/E in isolation, but whether the earnings upgrade cycle is broad enough to survive a higher discount rate. If profit delivery is concentrated in megacap technology and AI-adjacent infrastructure, the apparent valuation cushion is fragile: a modest capex-guidance reset at MSFT, AMZN, GOOGL or META would reduce both earnings expectations and the market multiple simultaneously. Over the next 1-3 months, the market is likely to reward companies converting AI investment into revenue or operating leverage, while penalizing infrastructure vendors whose order books depend on hyperscaler capex remaining elevated.

Higher Treasury yields create a dispersion trade rather than an unequivocal equity bear case. Banks, insurers and asset managers with net-interest-income or cash-yield exposure can outperform if nominal growth remains intact; long-duration software and unprofitable AI beneficiaries remain most exposed to multiple compression. LPLA is a qualified beneficiary through client cash economics and market-linked asset values, but a sharp risk-off drawdown would overwhelm the rate tailwind through lower advisory activity and asset-based fees.

Consensus is treating widespread estimate beats as proof that forecasts remain conservative. Late-cycle beat rates can instead reflect aggressive margin management and low pre-report estimates; the more investable confirmation is upward revision to 2027 EPS alongside stable gross margins and backlog, not backward-looking beats. A sustained rise in real yields or a deterioration in equal-weight versus cap-weight performance would falsify the benign earnings-breadth thesis.

Key Decisions for Investors

• Maintain a 1-3 month quality/value tilt: long LPLA versus short ARKK or a basket of unprofitable software. The pair captures higher-for-longer rate support and avoids paying for distant cash flows; exit if the 10-year Treasury yield falls materially after a growth scare or if LPLA reports net new asset deceleration.
• Use SPY put spreads rather than outright index shorts into the next Fed/earnings-guidance window: buy 3-month, approximately 5% out-of-the-money puts and sell 10-12% out-of-the-money puts. This protects against a multiple reset while preserving participation if earnings revisions continue upward; reassess after the next round of hyperscaler capex guidance.
• Do not infer a direct trade from FDS or GETY on this information alone. For FDS, monitor subscription growth and retention as a cleaner institutional-investment-spending read-through; for GETY, require evidence of AI-related licensing revenue and margin conversion before establishing exposure.
• Set a breadth alert: reduce cyclical and AI-beta exposure if equal-weight S&P 500 materially underperforms cap-weight while forward EPS revisions flatten. That combination would indicate index-level earnings resilience is narrowing rather than strengthening.