The stock market has no margin for error. DataTrek Research co-founder Nicholas Colas broke down a series of scenarios for the S & P 500, based on different forward price-to-earnings multiples. He noted that the benchmark index is trading at a ratio of around 22 — “a level consistent with past peak multiples,” he said. Based on the data, fair value for the S & P 500 with the current full-year earnings estimate of $266 per share sits at 5,852. That’s 7% below Tuesday’s close of 6,299.19. Put another way, one of two things needs to happen to justify current stock prices: Either S & P 500 earnings for 2025 come in well above the consensus forecast, or The benchmark’s multiple soars into “90s bubble” territory above 26 “To own the S & P 500 here, one must believe both that valuations can hold at 24x/expand to 26x and that earnings will come in largely as expected this year and next,” said Colas. “There are 2 vectors of confidence at work in U.S. equities, with one building on the other. The first is the belief that the American economy is essentially recession-proof. … On top of that dynamic sits the ‘AI trade’, which would not exist but for the animal spirits fueled by investor confidence in the U.S. economy.” So far, though, investors can take solace in the fact that corporate earnings have been strong this year. S & P 500 earnings grew by 13% in the first quarter on a year-over-year basis. For the second quarter, they are tracking for 10% expansion, according to FactSet. That’s more than double the 4.9% growth analysts anticipated heading into the reporting period. “The overarching theme that a lot of people are missing … is this theme of resilience,” Thorne Perkin, president at Papamarkou Wellner Perkin, told me earlier this week. He pointed out that the market has lately been able to weather tariffs, geopolitical tensions and turmoil in Washington and still reach record after record. “It wouldn’t surprise me if we finished August higher, and certainly by year-end,” he said. Perkin expects the S & P 500 to finish 2025 around 6,700-6,800. That range implies upside of 6.4% to 8% from Tuesday’s close. One potential hiccup? Most of the S & P 500’s earnings growth is coming from the Magnificent Seven , while the rest of the index is growing at a much slower pace. Should the Mag 7 falter, it will ding overall S & P 500 profits. On top of that, new service sector data released Monday showed the first cracks in the economy from U.S. tariffs . In other words, a recession is not entirely out of the question. That said, as Perkin noted, this market has been able to move past headwind after headwind. Who’s to say it can’t do it again?
