Stock Market Nears Record Highs as Earnings Growth Absorbs Elevated Discount Rates

The stock market is currently trading near record highs despite elevated oil prices and surging bond yields. Analysts project that aggregate third quarter S&P 500 earnings growth will be nearly 29% year over year, providing a strong fundamental floor that absorbs elevated discount rates.

Goldman Sachs strategist Ben Snider believes that if there is relief from surging gas prices and rising Treasury yields soon, it could open the door for another thrust higher for the market. He notes that while AI strength has kept the headline S&P 500 relatively resilient, the median stock in the index trades 16% below its 52-week high, dragging market breadth to its lowest level since the Dot-Com Bubble.

The 'Magnificent Seven' trade, fueled by AI optimism, has helped names like Meta and Nvidia. However, outside of the AI complex, there are a host of laggards, including McDonald's, PepsiCo, Lowe's, and Nike, all hovering around 52-week lows. Goldman's Snider is banking on improved market breadth supporting a higher S&P 500 in the next 12 months.