Heightened optimism about corporate profits often comes before a fall, says Jim Paulsen
Investors are looking ahead to more blowout earnings from Micron Technology - but such optimism may be a problem.
Amid all the recent angst and churn within the stock market - with investors questioning valuations in some pockets of the AI sector -most analysts remain optimistic about equities for the rest of the year.
Many have picked the irresistible round number of 8,000 for their S&P 500 SPX target by the end of 2026, powered, they believe, by continued strong earnings growth.
Indeed, just this week JPMorgan strategists - who are cautious by comparison, with an S&P 500 target of 7,800 - described average expected earnings growth of around 20% for 2026 and 2027 as "unprecedented."
However, Jim Paulsen sees danger in such earnings exuberance. In his Paulsen Perspectives blog, the Wall Street veteran has in recent days highlighted a number of issues that make him wary of the stock market's prospects.
These include the lagged damage done to equities from an energy price spike; a looming relatively tighter fiscal and monetary backdrop; evidence of heightened speculative behavior; and a defensive composition of the S&P 500 that's near a record low.
With regard to corporate profits, Paulsen notes that: "Recent S&P 500 earnings per share momentum has been about as strong as any time since at least 1990. As is evident today, great earnings usually make for happy investors."
This was clearly shown on Thursday, for example, when Micron Technology stock $(MU)$ surged 15.7% after delivering blowout results and guidance.
But he adds that, as the chart below shows, "strong EPS momentum has historically been good for stock prices ... 'until it hasn't'."
Source: Paulsen Perspectives
Earnings growth looked great in March 2000, but that marked the top of the dot-com bubble. This was also the case in Oct. 2007 and in early-2022, just before significant bear market declines started, Paulsen observes.
A reason for this is that unlike trailing 12-month reported EPS, forward 12-month estimated earnings - which is what most investors tend to rely upon - is at least partially a "sentiment indicator," according to Paulsen.
And that's important, he said. "Often near the end of bull market cycles, estimated EPS are typically strong, perhaps saying more about exuberant investment sentiment (as implied by optimistic EPS estimates) than about sustainable fundamentals."
Indeed, Paulsen also notes that the current 12-month forward consensus estimated S&P 500 EPS is nearly 90% above the trailing 10-year average reported EPS - the largest premium of estimated EPS above historical average EPS since at least 1990.
Paulsen says there's no way to tell how much today's EPS estimates reflect sustainable company performance or increasingly reflect rising investor optimism. Nonetheless, as the first chart demonstrates, "investors cannot be wholly comfortable about continuing to buy the stock market today simply because estimated EPS remain strong," he says.
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is down, as oil futures (CL.1) slip and gold futures (GC00) are trading around $4,050 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 7357.49 -1.91% -2.73% 7.48% 19.81% Nasdaq Composite 25,358.60 -4.37% -5.79% 9.11% 25.74% 10-year Treasury 4.381 -7.90 -6.20 20.90 9.60 Gold 4067.3 -2.53% -11.00% -6.11% 23.77% Oil 69.43 -9.29% -20.89% 20.94% 6.70% Data: MarketWatch. Treasury yields change expressed in basis points
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The buzz
OpenAI may pushback its initial public offering to next year, according to a report. Shares of investor SoftBank (JP:9984) tumbled 12% in Tokyo.
And the administration of President Donald Trump has reportedly asked the AI lab to limit its next model release over security concerns
Renewed AI jitters hit the stock markets of South Korea KR:180721, down 5.8%, and Japan JP:NIK, off 4.15%.
Share of ON Semiconductor $(ON)$ are slumping after the chip maker agreed to acquire Synaptics $(SYNA)$ , the AI platform group, for an enterprise value of around $7 billion.
Iran attacked a cargo ship in the Strait of Hormuz as Tehran continues to argue it should have the final say on transit though the chokepoint.
U.S. economic data due Friday include trade balance in goods for May at 8:30 a.m. Eastern, followed at 10:00 a.m. by the University of Michigan's Consumer Sentiment Index (final) for June.
SpaceX FOMO is officially over. Space stocks across the board are getting punished.
The chart
Source: Bespoke Investment
Remember when we all believed that the market would be in dire straits if the mega-cap tech stocks had a wobble? Bespoke Investment notes that so far in June, all of the top eight tech behemoths have had a rotten time, yet the S&P 500 closed Thursday just 3.3% off its record high touched at the beginning of the month, having gained 7.5% year-to-date. The moves come after SpaceX's $(SPCX)$ IPO launched during June. "Did SpaceX suck the life out of the rest of its mega-cap brethren?" ponders Bespoke.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name MU Micron Technology SPCX Space Exploration Technologies NVDA Nvidia TSLA Tesla INFY Infosys MSFT Microsoft AAPL Apple TSM Taiwan Semiconductor Manufacturing SNDK Sandisk AMD Advanced Micro Devices
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June 26, 2026 06:47 ET (10:47 GMT)
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