Executive summary for Australian investors
Second-quarter 2024 earnings are beating expectations, yet share prices are stalling on valuation concerns. The S&P 500 is now priced for perfection: 22× 2024 earnings and 20× 2025 earnings leave almost no margin for error. Foreign capital—AUD 2.5 trillion equivalent over the past year—is flooding into US equities, compressing global risk premia. Every sector except healthcare and energy is trading above its 10-year average multiple, while the AI narrative has expanded well beyond the Magnificent 7. Historical parallels to the 1995-2000 tech bull market suggest further upside, but only if AI monetisation accelerates.
Key takeaways
- Earnings beats, price retreats: 83 % of S&P 500 reporters have beaten EPS estimates, yet stocks like Netflix and JPMorgan faded post-results. The average beat margin (7.9 %) is below the five-year norm (9.1 %).
- Valuation grid: Fair-value matrix shows the S&P 500 is only attractive if 2024 earnings hit US$264 and the market sustains 24–26× P/E—levels last seen at the 1999 dot-com peak.
- Recession probability re-priced: Consensus now assigns a ~5 % chance of a cyclical downturn in any given year, down from the historical 15–20 %, justifying structurally higher multiples.
- Global capital rotation: Foreign private investors poured US$600 billion into US equities in the 12 months to May 2024, dwarfing prior records and offsetting fears of post-trade-war outflows.
- Sector breadth: Industrials, materials, consumer discretionary and communication services all trade at premiums to 10-year averages; only energy and healthcare lag.
- AI dependency: Communication services + IT account for ~30 % of S&P 500 earnings; the MAG-5 alone contribute 12 %. Failure of AI revenues to scale would materially impair index-level growth.
- Nasdaq analog: Day 639 of the current rally (Dec-22 low to Jul-24) matches the 1995-1997 trajectory tick-for-tick. If the pattern persists, a multi-year advance remains possible, with “March 2000” still years away.
- Future value lens: Tesla’s market value is 91 % “future value” (autonomy, robotics); Alphabet the lowest at 45 %. Nvidia sits near the big-tech average of 67 %.
- European structural bid: Continental wealth managers are reallocating from domestic bonds and utilities to US mega-caps, viewing them as scarce, globally scalable assets.
- Next wave—robotics: Industry insiders flag 2026-2030 as the physical-AI era (humanoid robots, autonomous logistics). Tesla’s Optimus and Cybercab narratives underpin its premium.
What to watch next
1. Earnings revisions: Consensus 2025 EPS of US$300 needs to hold; any downgrade widens the valuation gap.
2. AI adoption metrics: Monitor enterprise software commentary for evidence that Gen-AI is moving beyond chatbots into measurable revenue.
3. Foreign flows: US Treasury TIC data (monthly) for signs the AUD 150 billion-per-month pace is slowing.
4. Policy shocks: Fed pivot or tariff escalation remain the clearest catalysts to break the “no recession” narrative.