Full Article Link: S&P Global – US Stock Market Hot Streak Defies Economic Slowdown Signals
“Investors are projecting major efficiency gains and cost cutting from AI adoption, which could boost company earnings, but that does not automatically translate into higher GDP growth,” said Dr. Stephan Shipe, founder and CEO of Scholar Financial Advising and finance professor at Wake Forest University, in a recent interview with S&P Global Market Intelligence.
“The divergent trends can coexist as they are impacted by different factors. For instance, higher margins can lift earnings and stock valuations, while lower public and private spending can constrain overall economic growth.”
“If government spending slows or uncertainty rises, that could dampen GDP even if certain sectors are thriving,” Shipe said. “In essence, the market on the one side sees margin growth and is optimistic, but GDP on the other side reflects a broader and more cautious view of economic output.”
Key Takeaways
- The S&P 500 hit record highs in July, rising over 8% year-to-date, even as US GDP growth is forecast at just 1.4% for 2025 — one of the slowest rates in decades.
- Investor sentiment has rebounded after early-year tariff fears, buoyed by stronger-than-expected corporate earnings and easing worst-case trade scenarios.
- AI adoption is driving optimism by boosting profit margins and earnings expectations, despite muted economic growth projections.
- More than 81% of S&P 500 companies reporting Q2 earnings beat expectations, with valuations reaching a four-year high of 23.55x forward earnings by late July.
- Consumer spending is also holding up, with June retail and food service sales rising 0.6%, well above economist forecasts, and inflation remaining below 3% since February.
- However, key risks remain, including downward revisions to job growth, stagnant labor force participation, and lingering trade uncertainty that could resurface.
- Shipe’s perspective underscores the importance of understanding the disconnect between equity markets and macroeconomic data — and ensuring portfolio decisions aren’t based solely on one set of signals.