Stock Market Hits Record Highs as Earnings Beat and AI Spending Drive Rally
U.S. stocks reached fresh all-time highs this week as strong corporate earnings, particularly from tech leaders, and massive AI infrastructure spending offset concerns about inflation and the Iran conflict. The S&P 500 topped 7,500 and the Dow set new records as investors grew more confident about earnings growth outpacing economic headwinds.
Market Momentum Accelerates
In May, the S & P 500 reached fresh all-time highs, above 7,500, after staging a major recovery from the March lows. The S&P 500 gained 0.4%, extending its winning streak to eight consecutive weeks, the longest since December 2023, while the Dow Jones added 294 points to reach an intraday record high, marking its third positive week in four. The Nasdaq rose 0.2%, securing its seventh weekly advance in eight weeks. AI investment is expected to drive roughly 40% of S&P 500 earnings growth this year, with the largest cloud computing companies planning to spend an estimated $670 billion in 2026.
Earnings Exceed Expectations
As of May 11, with 453 of the companies comprising the S&P 500® reporting, 84% of companies beat their first-quarter profit estimates. S&P 500 revenues have been growing by 10%, but profits have been rising faster, while operating margins have increased to roughly 16%, an all-time high. Tech giants have led the charge, with SoftBank Group shares extending their scorching rally to a second day, rising over 11% Friday, and building on momentum after Nvidia's blockbuster earnings boosted AI-linked stocks. The company's shares had closed 20% higher Thursday, adding over $35 billion to its market cap.
Major IPO Announcements
A flurry of initial public offerings from mega-cap companies this year could mark the top of the market, strategists said, drawing parallels with the late-1990s dot-com bubble. SpaceX's hotly anticipated IPO, confirmed in a regulatory filing on Thursday and expected on June 12, could mark the largest float in history. Elon Musk's firm is targeting a valuation of $1.75 trillion on the Nasdaq. OpenAI and Anthropic have also announced their intentions to go public later this year. All three companies are yet to generate an annual profit, though Anthropic is expected to post its first-ever profitable quarter in its upcoming earnings.
Caution Amid Rally
While the bull run remains intact, strategists warn of risks. Even professional investors have drawn down cash holdings to buy stocks, with average cash levels dropping to 3.9% of portfolios, from 4.3%, according to a widely-followed survey of fund managers from Bank of America Securities. A drop below 4.0% is considered a sell signal. With first-quarter earnings wrapping up, and the calendar quickly emptying of any major catalysts, it may be time for a technically-driven market to allow fundamentals to catch up to prices.