The View from Higher Ground

• The S&P 500 has a forward P/E multiple of 20.2 times.

• Profit margins are at a record high of 16.9%.

• The combination speaks to a market that has added upside potential.

The best investors don't predict the future. They just refuse to lose sight of it…

Warren Buffett spent almost seven decades telling investors the same thing: zoom out. He's never been the guy trying to call the next correction or chase the next headline. When the financial system was in free fall in the fall of 2008, he wasn't hiding in cash, he was writing an op-ed titled “Buy American. I Am.” He couldn't call the bottom. He didn't need to. He could see the bigger cycle underneath the panic, and he was willing to act on it while everyone else was staring at the wreckage in front of them.

That instinct separates investors who compound wealth over decades from those who get shaken out every time the market gets loud. Up close, every rally looks stretched and every pullback looks terminal. Pull the lens back far enough, and the noise starts to resolve into a trend.

Having and understanding that type of viewpoint feels especially relevant right now. With the S&P 500 sitting near all-time highs, it's tempting to zoom in on every wobble and wonder if the run is overdone. But these are the types of moments that reward perspective over reaction.

I found myself thinking about that intuition this weekend. I was reading a piece from BNY Investments on whether today's stock market is in bubble territory. Their data lined up with that same big-picture read. And it's part of why I continue to believe this rally in the S&P 500 still has room to run.

But don't take my word for it, let's look at what the data's telling us.

It seems like each time the S&P 500 makes new highs, the same worries resurface: valuations look stretched, and stretched valuations don't end well. It's a fair question to ask. It's just not the right conclusion.

Start with the multiple itself. According to BNY, the S&P 500 is trading at roughly 20.2x forward earnings. That’s right in line with its average since 2020, according to financial data provider FactSet. Yes, that's still rich next to pre-Covid norms. But comparing today's market to a pre-pandemic world skips over what's actually changed.

Net margins are the difference. They're running well above their long-term historical average, and that's not an accident. It reflects real gains in operating efficiency and business models that are simply more durable than they used to be. A higher, stickier margin is exactly what justifies paying a higher multiple than history “normally” allows.

The chart below tells the story in one picture: net profit margins have climbed decade over decade, from an average of roughly 8.2% in the 2000s to about 16.9% today, while the multiple investors are willing to pay has remained more constrained...

Then there's growth. Consensus estimates have the S&P 500 growing earnings 31% this year and another 13% in 2027, according to FactSet. Both numbers are well ahead of the long-run average. That's not the earnings backdrop you'd expect to find under a bubble.

So, let’s put it all together… A multiple in line with the post-Covid norm, margins that are structurally higher, and strong earnings growth. When we employ big picture perspective while thinking about stocks, the current P/E looks a lot less like froth and more like a market pricing in fundamentals that have and continue to improve. Those dynamics should continue to underpin a steady rally in the S&P 500.

Five Stories Moving the Market:

Treasury Secretary Scott Bessent refrained from any further signals on revamping U.S. debt management, following a report that his department could draw down some of its cash pile to fund buybacks of higher-yielding older securities – Bloomberg. (Why you should care – Bessent is likely employing his skill as a hedge fund manager to navigate a difficult moment)

Treasury Secretary Scott Bessent said the U.S. is launching a new campaign to isolate the Iranian regime, warning that countries and companies that do business with Tehran will face the wrath of the Trump administration - WSJ. (Why you should care – the U.S. is likely pressuring Iran to recommit to the terms proposed in the June Memorandum of Understanding)

U.S. Federal Reserve Chairman Kevin Warsh's debut speech at the annual Jackson Hole conference this week has ​taken on added weight as traders and analysts look for guidance about the recent jump in bond yields and for reassurance of his independence from the Trump administration – Reuters. (Why you should care – Wall Street typically takes time to get comfortable with a new Fed chair's tendencies)

Asian refiners are on course to nearly double their purchases of U.S. crude for September from a month earlier; exports to Asia should rise from 22 million barrels in August to 40 million barrels in September, according to ship and commodity tracking companies Kpler, Vortexa, and Sparta Commodities - Bloomberg. (Why you should care – the increased demand should support domestic economic growth)

The intensifying late-summer backlash against data centers is inspiring panic among some corners of the tech sector, amid fears that the industry is mishandling a political crisis that will stretch into 2028 and beyond – POLITICO. (Why you should care – less available compute capacity Is likely to push up data center rental prices)

Economic Calendar:

Earnings: DKS, HEI, INTU, SMTC, ZM

Germany – GDP for Q2 (2 a.m.)

Germany – Ifo Business Climate Index for August (4 a.m.)

U.S. – Building Permits for July (8 a.m.)

Fed’s Barkin (Richmond, Non‑Voter) Speaks (8 a.m.)

U.S. – ADP Employment Change Weekly (8:15 a.m.)

U.S. – FHFA House Price Index for June (9 a.m.)

U.S. – S&P/CoreLogic Case‑Shiller Home Price Index for June (9 a.m.)

U.S. – Conference Board Consumer Confidence for August (10 a.m.)

U.S. – New Home Sales for July (10 a.m.)

U.S. – Richmond Manufacturing Index for August (10 a.m.)

Treasury Auctions $95 Billion in 6-Week Bills (11:30 a.m.)

Treasury Auctions $69 Billion in 2-Year Notes (1 p.m.)

Fed’s Barkin (Richmond, Non‑Voter) Speaks (4 p.m.)

U.S. - American Petroleum Institute Crude Oil Inventory Data (4:30 p.m.)