Wall Street analysts are jacking up S&P 500 profit forecasts faster than any time since the pandemic recovery. Some strategists think the numbers propping up this rally won’t hold.
Consensus estimates say S&P 500 earnings will grow 25% over the next year. Profit forecasts have jumped nearly 20% in six months — the sharpest climb since 2021.
Ben Inker at GMO puts it simply: forecasts for the next two years are “rising at an exceedingly high rate, nothing we have seen outside of a crisis recovery.” He thinks the market will eventually realize those numbers aren’t real.
Chipmakers and AI-hype stocks are driving most of the upgrades. Michel Lerner at UBS calls it an “earnings bubble.” His argument: AI-linked stocks are priced as if supernormal profits will last forever. They won’t.
The S&P 500 is up 20% over the past year. The Nasdaq gained over 25%, including its best quarter in six years. Stocks trade near 20 times forward earnings — not dot-com crazy, but high.
Kasper Elmgreen at Nordea says there’s a thin margin for error heading into Q2 earnings season. He’s asking how long positive surprises can keep coming.
There’s another angle. Traders now expect at least one quarter-point rate hike by year-end. That’s a complete flip from earlier bets on multiple cuts. Add rate pressure to overstretched profit forecasts and the picture gets uglier.
