The stock market is back at all-time highs, a baffling ascent to many given just how much macroeconomic conditions have deteriorated lately — namely, in the rising price of oil and climbing Treasury yields. But to many close observers of the market, the latest rise is unsurprising. The market’s heavy concentration in technology has largely immunized the S & P 500 and Nasdaq Composite against the cyclical concerns weighing down the rest of the market, at least for now. And, the prospect of yet another earnings season that’s projected to show historic strength in profits has investors confident that the largest companies that are growing the fastest will be able to sidestep growing cracks in the road. That said, if oil and yields keep getting worse, that could start to turn the economy upside down, hurting the major averages. On Thursday, stocks were down for a second day after Tuesday’s peak. For all of the latest turmoil, here are five reasons why the stock market still remains close to all-time highs. Tech concentration There’s an adage on Wall Street that the stock market is not the economy. And, when it comes to the makeup of the S & P 500, that’s increasingly he case. Forty percent of the broad market index is made up of tech stocks, which have surged recently as investors — wary of higher interest rates — turn back to those companies most able to weather any sudden downturn. The Magnificent Seven companies are among the biggest beneficiaries of the shift, given their fortress balance sheets. The group, which until recently was little changed this year, rallied 11% over the last three months. The past few weeks have underscored the difference when there’s a significant tilt toward tech. The S & P 500 may be at all-time highs, but the Dow Jones Industrial Average, known for its skew to the real economy and more sensitive to higher yields and oil, is more than 6% below early August record. Earnings Investors are counting on earnings to drive a late-year rally in stocks, with projected strength in corporate profits — and, hopefully, companies’ forward guidance — helping investors focus on fundamentals rather than negative headlines. In recent quarters, earnings growth has expanded at a rapid pace, a trend that’s expected to continue in the third quarter. S & P 500 companies are expected to post a blended earnings growth rate of more than 29%, the third straight quarter of growth above 25%, according to FactSet data. In theory, that could help the bull market broaden out again, especially in sectors such as energy where the fastest earnings growth is expected. Yields Yes, bond yields are at multidecade highs, with the 10-year Treasury hitting its highest point since 2002. But higher priced capital has yet to meaningfully dent equities, for several reasons cited by investors. For one, many investors accept that higher yields may be the price of rapid growth from the artificial intelligence buildout, rather than a response to higher inflation. These traders argue that the current level of bond yields have only normalized to historic levels. Others say that tight credit spreads are helping put a ceiling above just how high yields could get. Yet, if yields keep climbing, they could eventually dent corporate profitability. Oil Expensive oil is a concern, with lower-income consumers bearing the brunt of the spike in prices at the pump. But, for the broad stock market, it has yet to hurt the corporate profit outlook, which remains bright. BeiChen Lin, head of Canadian strategy at Russell Investments, said he expects that oil prices would have to reach between $100 and $120 a barrel for several months before they start to hurt equities, rather than topping $100 a barrel and then falling back down, as they’ve done in recent weeks. International benchmark Brent crude futures last traded close to $106 a barrel, while the U.S. benchmark WTI was closer to $93 a barrel. Consumer Even the consumer remains resilient, with strength in the latest retail sales report highlighting that Americans are still shopping — even as their stated confidence in the economy has weakened to its lowest in over a decade. The labor market has managed to hang on, even as it contends with growing fears of AI disruption. The U.S. unemployment rate remains at 4.2%, even as employers have slowed the pace of hiring. So long as consumers continue to spend on experiences, such as travel and leisure, the stock market can continue to hang on as well. And, for the present, that seems to be the case. Ultimately, so long as yields and oil don’t upend the economic expansion, the stock market may have just enough going right for it to continue to advance.
