A Roaring Market or Just Hot Air?

The parallels between today’s tech-heavy US market and the late 1990s internet-stock boom are striking. The S&P 500 has gained 20% over the past year, but what lies beneath this surface-level success? Upcoming second-quarter earnings reports will be crucial in determining whether this is a continuation of the bull market or a catalyst for another sharp correction.

According to Nick Raich, who tracks earnings closely at his research service the Earnings Scout, overall earnings are expected to rise by 20% this quarter – more than three times the typical gain. A staggering 96% of S&P 500 companies that have reported so far have exceeded estimates, with an average earnings growth rate of 32.4%.

Rising earnings can drive stock prices up, but there’s also a risk of inflationary pressures if companies continue to report strong growth. This could be a sign that they’re pushing the boundaries – and potentially creating unsustainable economic conditions.

The late 1990s dot-com bust is a stark reminder of what happens when speculation and overvaluation run amok. We seem to be repeating the same mistakes all over again, with a tech-heavy market driving the current boom. But what’s behind this trend? Is it real growth or just hype?

Earnings revisions for the third quarter are up 3.7%, which is indeed a bullish signal – at least according to Raich. However, history has shown us that these booms eventually come crashing down.

Investors should be paying attention to the numbers and trends underpinning this market. If forward earnings-estimate momentum continues to improve, we can expect further stock gains. But how long can this momentum continue? And when will the inevitable correction come?

The final reckoning will come when earnings reports are released, but for now, it’s all just speculation. Will this be a Roaring ’20s or just hot air? Only time will tell – and history has shown us that these booms eventually come crashing down.