Part 6/11:
Investors are ramping up their expectations for future earnings growth in the S&P 500. Currently, Wall Street analysts project an 18% annual growth rate over the next five years, nearly double the historical average of 10%. This optimism is driven largely by big tech firms—Google, Meta, Amazon, Microsoft, Nvidia—that have benefited from advancements in advertising, cloud computing, AI, and semiconductors.
These high growth expectations justify elevated market valuations, as seen through the Price-to-Earnings (PE) ratio. However, elevated PE ratios—often comparable to the dot-com bubble—mean increased vulnerability. Should earnings growth disappoint or expectations deteriorate, the market could suffer a sharp correction.