Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / The S&P 500 at 7500 What History Says About Market Peaks
Transcript
- Lucas: The S&P 500 closed at 7,499 yesterday. Call it 7,500 for the headline writers. That's roughly a 2 percent weekly gain, and the NASDAQ added nearly 3 percent in the same stretch. Luna: I saw the Dow hit 52,319 as well. Three major indices at all-time highs simultaneously doesn't happen every day. Lucas: It doesn't. And the natural question from anyone who's been around markets for more than a couple of years is: are we in bubble territory now? So I pulled up some history. Luna: Let me guess — you looked at the S&P 500's price to earnings ratio. Lucas: Exactly. Trailing P/E on the S&P 500 is roughly 22 today. That's above the 25-year average of about 19.5, sure. But it's well below the dot-com peak of 31 in 1999, or even the 2021 peak near 30. So elevated, but not screamingly so. Luna: And the 10-year Treasury yield at 4.42 percent — that's actually down about 7 basis points over the past five days. If bond investors really thought this was a repeat of 1999, you'd expect yields to be rising sharply as they priced in higher growth and inflation. Lucas: Right. The yield curve is still inverted — the 2-year at 3.73 percent is below the 10-year — but the inversion has narrowed. That's more consistent with a soft landing than a melt-up. Still, I want to drill into something: is this rally broad-based or top-heavy? Luna: That's the billion-dollar question. The NASDAQ is up nearly 3 percent in a week, while the Russell 2000 — small caps — only managed 1.3 percent. That tells me mega-cap tech is doing the heavy lifting. Lucas: And if you look at the equal-weight S&P 500 versus the cap-weighted version, the gap has widened this year. The cap-weighted index is up about 14 percent year-to-date; the equal-weight version is up closer to 8 percent. So the rally is real, but it's not evenly shared. Luna: Which is exactly what happened in the late 1990s — a narrow group of tech darlings dragged the index higher while the rest of the market lagged. History doesn't repeat, but it often rhymes. Lucas: That said, the economic backdrop is different. Real GDP grew at an annualized 2.1 percent in the first quarter of 2026, up from 0.5 percent in the previous quarter. Corporate earnings have been climbing. It's not a vacuum. Luna: And the Fed? They've held the fed funds rate at 3.63 percent since May. No cuts, no hikes. That's a stable policy environment, which markets tend to like. Lucas: So let me pose the question differently: at what level does the P/E ratio become a real danger signal? Historically, when the S&P 500's P/E has exceeded 25, forward 12-month returns have been negative more often than not. Luna: We're at 22 now, so there's some runway. But if earnings disappoint or if inflation re-accelerates — core PCE is already at 3.4 percent — that multiple could compress fast. Lucas: Exactly. The bond market is signaling that inflation expectations are contained — the 10-year breakeven is at 2.24 percent, barely above the Fed's target. But if that number starts climbing, equity multiples will feel the heat. Luna: So where do you see the biggest risk? A sudden spike in yields, or a gradual erosion of earnings growth? Lucas: I think the bigger near-term risk is a sentiment shock. Everyone is looking at 7,500 and asking if it's the top. That self-awareness can become a self-fulfilling prophecy — a 5 percent correction wouldn't be shocking. But a full-blown crash? You'd need a catalyst, and I don't see one yet. Luna: That's a very 'Lucas' answer: data-driven, non-alarmist, but not dismissive. Lucas: We try. And on that note — and I promise this connects — a quick honest thing. This show is completely ad-free. A handful of listeners chip in monthly through Buy Me a Coffee dot com slash Fexingo, and that's literally what funds making this many episodes. If walking through the economy with us has made something click, that's the way to keep it going. Luna: Yeah, it's a small group, but it makes a big difference. No ads, no sponsors — just listeners who find value in what we do. We appreciate it. Lucas: Alright. Back to the numbers. If you're an investor sitting on gains right now, the historical playbook says don't panic, but do rebalance. Trim some of those tech winners into strength, maybe add a bit of small-cap exposure or international equities. The S&P 500 at 7,500 is a milestone, not a finish line. Luna: And keep an eye on the 10-year yield. If it breaks above 4.5 percent convincingly, that would change the calculus. Lucas: Absolutely. For now, the market is pricing in a lot of good news. The question is whether the news delivers. Thanks for listening — we'll be back tomorrow.