The S&P 500 is flirting with record territory again, sitting at 7,572.40 on July 15 — up roughly 10.6% year-to-date. The index's forward 12-month price-to-earnings ratio now stands at 20.1, just above the five-year average of 19.9 and the 10-year average of 19.0.
Earnings growth drives valuation
Second-quarter 2026 earnings for S&P 500 companies are expected to jump 23.1% year-over-year, according to the latest estimates. That kind of growth helps explain why investors are willing to pay a bit more for each dollar of earnings — the forward P/E, while elevated, remains within shouting distance of historical norms.
The index's climb has been steady rather than explosive. A 10.6% gain in roughly six and a half months works out to a monthly average of about 1.6%, a pace that suggests broad-based buying rather than a speculative frenzy.
Consumer confidence still cautious
The Conference Board's Consumer Confidence Index rose to 91.2 in June, up from the prior month but still below the 100-point threshold that economists typically associate with a healthy outlook. That reading suggests households are feeling better about the economy but aren't exactly exuberant.
Spending data tells a similar story. The NRF/CNBC Retail Monitor, which tracks total retail sales excluding autos and gas, showed a 0.33% month-over-month increase in June on a seasonally adjusted basis. On an unadjusted year-over-year basis, sales were up 9.41% — a solid clip that reflects both higher prices and real consumption gains.
What the data means for the rally
The combination of strong earnings growth and improving but not overheated consumer sentiment has given the market room to run. The S&P 500's forward P/E of 20.1 is a touch above its five-year average, but not dramatically so — especially when earnings are growing at more than 20%.
Investors will be watching the next batch of corporate reports closely. If Q2 earnings come in as strong as expected, the index could push past its record close. If they disappoint, the valuation argument gets harder to make.
The next major test comes in the weeks ahead as more companies report second-quarter results. The market's ability to hold near record levels will depend on whether those earnings numbers live up to the hype.
