The S&P 500 is currently trading around 6,850 points, near its all-time high, after edging up 0.06% on 12 November 2025 and gaining roughly 12% over the past 12 months.
This advance reflects expectations of corporate earnings growth and the Federal Reserve’s monetary-easing cycle.
However, the underlying picture is more complex: the U.S. macro backdrop remains resilient, valuations have entered elevated territory, and policy risks—particularly the longest government shutdown in history—continue to pose threats.
Comerica notes that U.S. GDP in 2025 shows significant volatility, with Q2 growth outpacing Q1 and the possibility of further acceleration in Q3.
Meanwhile, the ISM Services Index rose to 52.4 in October, its highest since February. October CPI hovered around 3.1% YoY—still above the 2% target but well below overheating levels.
On the other hand, although the ADP report showed some improvement, the private sector cut an average of 11,250 jobs per week in the four weeks ending 25 October, indicating a cooling labour market.
The Conference Board Consumer Confidence Index fell to 94.6, sharply down from 109.5 a year ago; short-term expectations slipped to 71.5—below the threshold of 80 historically associated with recession risk within 12 months. Overall, the U.S. macro environment is not weak, but it is no longer overheating. Markets are leaning toward a scenario of slower—but not recessionary—growth and continued disinflation sufficient for the Fed to proceed with more rate cuts.
After an aggressive tightening phase, the Fed has already implemented rate cuts, reinforcing expectations of continued easing. Leveraging this trend and robust earnings, Goldman Sachs raised its S&P 500 year-end 2025 target from 6,600 to 6,800, and now forecasts 7,000 within six months and 7,200 within 12 months. At the same time, GS expects average annual returns for the S&P 500 to decline to 6.5% over the next decade—far below the post-COVID era—implying that most of the “re-rating” driven by interest rates has already been priced in. Long-term upside will rely more on EPS growth rather than further P/E expansion.
The extended government shutdown has made the policy environment even harder to predict. Although recent updates suggest the prolonged closure may soon end, the disruption of October inflation and labour data has left the Fed “partially blind,” increasing uncertainty around its next policy moves.
On another front, strong corporate earnings have been a key factor supporting the S&P 500 at its highs. According to FactSet, 91% of S&P 500 companies have reported Q3 2025 results, with 82% beating EPS expectations—above both the 5-year and 10-year averages. Index-wide EPS grew 13.1% YoY, marking the fourth consecutive quarter of double-digit earnings growth, while revenue rose 8.3% YoY, the strongest pace since Q3 2022. The main contributors were Technology, Financials, Consumer Discretionary, and Industrials, while Communication Services lagged.
However, the latest earnings season shows that market sentiment has become more demanding. Companies beating expectations did not see strong upside reactions, while those missing estimates experienced sharp drawdowns. On average, earnings-miss stocks fell 5.1%, double the 5-year average.
The S&P 500 is now trading at elevated valuations, with a P/E of roughly 22.7—higher than the 5-year average near 20 and the 10-year average of 18.6. Much of the momentum comes from technology stocks and the broader AI narrative. However, excessive expectations mean that any disappointment could trigger corrective moves.
Key drivers supporting the index today include a cautious Fed easing cycle, the absence of a deep recession, AI’s continued transition into durable earnings growth, and receding policy risks. Yet if even one of these pillars shifts off-course, the index’s elevated valuation could make it highly sensitive to downside shocks.
In the near term, the S&P 500 may continue to climb cautiously as it retests its historical peak. The market will need a strong catalyst to break convincingly into new highs. Conversely, if mixed signals emerge regarding monetary policy, trade risks, or the AI earnings narrative fails to meet expectations, a corrective pullback could materialize.