As noted, the earnings/macro story has been notably supportive for equities with the AI build-out and capex boom supporting a surge in (tech-driven) earnings.
There has been some improvement in non-tech as well, and the economy has been relatively robust — but as the chart below shows, earnings momentum is running ahead of economic momentum due to the structural/thematic nature of it. $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$
The problem is, again; things look about as good as it gets on the earnings momentum front (already rolling over from very strong levels). And then there’s the point that a lot of US leading economic indicators are pointing to a slowdown in 2027:
A slowdown doesn’t necessarily mean recession, you can just have a tapering off in activity or a growth scare that doesn’t cut deep. But it is risky territory, particularly when so much of the bull market narrative has been focused on earnings.
It may be difficult for the tech earnings theme to keep pumping at a time when that theme is getting tired and the economy potentially set to soften.
Hence the increased scrutiny we’ve seen recently on the earnings front and the steady whispers of doubt on the AI theme. If the economy goes, then those richly priced valuations that relied on a story of strong earnings growth will need to be adjusted (to put it euphemistically).
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