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Today’s Points:

• The S&P 500 is at its first all-time high since Feb. 19.
• That’s in dollars — in other currencies, it’s still a long way from a record.
• The high implies great faith in US profit margins — which is questionable.
• The US housing market is starting to show signs of serious stress.
• AND: The best 100 movies of the century so far; source for argument.

Happy Days Are Here Again

Liberation Day can be forgotten. Coronation Day — Feb. 19, when the White House released an image of President Donald Trump wearing a crown, and the S&P 500 set a high for the year before beginning its descent — is also firmly in the past. As the US begins Independence Day week, the index is back at an all-time high.

There are many reasons behind this, but plainly it’s an America First stock market record. The benchmark is above its Feb. 19 level when denominated in dollars, but not when valued in any other major currency. This high owes much to the dollar’s depreciation:

The rest of the world’s stocks have beaten the US by about 10 percentage points since then. In dollars, that means a nice gain:

The new all-time high doesn’t, then, challenge the prevailing narrative that it’s best to take money out of the US and reallocate elsewhere. The hugely significant decision to remove the Section 899 “retaliation tax” clause from the One Big Beautiful Bill Act currently before Congress will be a major relief for asset allocators on this basis, but leaves much of the logic for switching out of the US market intact.

This rebound has little to do with the giant tech platform groups that dominate the S&P. Since the previous high, Bloomberg’s Magnificent Seven index dipped much further during the alarm over the Liberation Day tariffs, but its performance is now bang in line with an index of the other 493 largest stocks:

This rebound took Wall Street by surprise. According to the regular average of strategists’ official year-end forecasts carried out by my Bloomberg colleague Lu Wang, they have just started to raise their estimates after slashing them during the trade furor. This stokes optimistic momentum, as they’re now engaged in upping their forecasts again.

The selloff was driven primarily by politics — growing realization that Trump 2.0 was serious about tariffs, followed by outright horror after the extreme levies announced on April 2, Liberation Day. The 90-day pause that triggered the rebound ends next week. It’s unclear what the administration will do then, but Canada’s concession to withdraw a digital sales tax to restart trade talks suggests nothing can be taken as a foregone conclusion.

Thus the rebound reflects the belief that a) the big Liberation Day tariffs will quietly go away for the most part, and b) the levies already in place won’t hurt the economy or company bottom lines too much. After a good few weeks for the administration, the hope is that Trump will desist from market-unfriendly ideas (tariffs and a clampdown on legal migration), while going ahead full-bore on tax cuts and deregulation.

The faith that margins will be proof against tariffs (which, after all, are paid by importing companies) and against other pressures is perhaps the greatest reason for concern. The S&P 500 is back trading at more than three times sales, close to a record:

Sales multiples can widen like this because profit margins have boomed since the pandemic. If companies keep a higher proportion of their revenues as profit, then it makes sense for the revenue multiple to increase. But, as I outlined over the weekend, there are ample reasons to think that Trump 2.0 policies won’t be kind to margins. This looks like an extremely exposed position that is impossible to call cheap. 

It’s also more or less impossible to say that stocks are decent value compared to bonds. This rally, combined with sticky Treasury yields as the Federal Reserve resists cutting rates, has brought the earnings yield on the S&P (the inverse of the price/earnings multiple) below the 10-year Treasury yield. Buy now and you are receiving no compensation for the extra risk of stocks compared to bonds:

This points to another key explanation for the rally: The belief that rates and longer-term yields will soon fall. That’s in part because of the increasing pressure on the Fed, and the likelihood that it will soon be under the charge of someone more dovish. Any signal that the Fed’s independence is in question would do further damage to the dollar, but that would not be a problem for domestic investors in US equities.

There’s also a prevalent belief that the Fed should cut rates. That would follow from a belief that tariffs’ impact on inflation is exaggerated (which we’ll return to, and will be tested by the forthcoming employment data) and also from concern over the housing market, which is showing serious signs of cracking (see below).  

There are always upside risks with the stock market to go with the downside, and there are plenty of them (as Jonathan Levin points out). This all-time high still looks premature. 

An American’s Home Isn’t His Castle

For most Americans, the health of the housing sector is joined at the hip with their perceptions of the economy, and their own well-being. Over three years, home price affordability has deteriorated to levels seen in the mid-80s, and cracks in the housing market are increasingly visible. Currently, building permit issuance data point to a slower pace of construction, with recent retail sales also indicating home improvement spending is losing steam. 

A measure of affordability curated by ATTOM Data shows that 99 percent of counties with sufficient data on median-priced single-family homes and condos were less affordable in the second quarter of 2025 than historical averages. That was the 14th consecutive quarter where purchasing and maintaining a median-priced home in the US has required a higher percentage of the typical owner’s wages than had historically been needed.

Warning signs. Photographer: David Ryder/Bloomberg

Additionally, major expenses for a median-priced home would have consumed 33.7% of the average American’s annual income — up from 32% in the first quarter and well above the 28% share typically recommended by lenders. 

With prices ever further out of reach for many people, it’s not surprising that inventories of unsold houses are mounting. Continuing high mortgage rates and slowing wage growth make a painful combination. Although the University of Michigan’s latest measure of home buying sentiment improved marginally, confidence is still near a multi-decade low. The pandemic appears to have done far more damage to confidence even than the great mortgage meltdown that started about 20 years ago:

The weak demand showed up in last week’s new home sales data, which fell below expectations, while previous months’ sales were revised lower. In a flashback to the crisis era, the supply in May of new homes for sale rose to the most since 2007, while the supply of completed homes was the highest since 2009. Whether low demand drives prices further downward is only a matter of when, not if. The latest S&P CoreLogic Case-Shiller 20-City measure of home prices recorded a second consecutive month of declines:

Unlimited’s CIO Bob Elliot argues that this is just the beginning:

The rapid cooling of prices was broad-based. Unlike late 2022, when surging rates shocked the market, this occurred during relative calm driven by sellers throwing in the towel, which suggests the downward pressure may continue.

With builder incentives propping up new home sales, Oxford Economics’ Nancy Vanden Houten sees no real upside in the months ahead, as mortgage rates will likely remain elevated while the labor market softens. “The increased supply of homes for sale and builder price cuts are keeping a lid on new home prices, which rose in May,” she argues, “but prices have mostly moved sideways over the last several months.”

The fate of stocks in listed homebuilders suggests equity investors have already lost confidence in the housing market:

Should we take cracks in the housing sector as warning signs of the overall health of the US economy? Probably. Elliott argues that while slowing construction directly creates a drag on measured gross domestic product, there are typically magnified knock-on impacts, in part through slowing construction employment, which is one of the most volatile categories in the labor market. 

So far, jobs data have not provided a probable cause to startle the Fed. If anything, the central bank believes we’re closer to maximum employment, which Elliot explains could be due to several reasons, particularly related to labor hoarding and structurally low skill supply. But with housing activity slowing, it’s likely to roll over:

The housing market is not the economy, as many folks say, but it is an important direct and indirect influence on activity and spending. The shift to much higher supply and further weakening demand is creating cracks that will be felt broadly.

Ultimately, the cracks opening up add further risk to an economy reliant on robust spending growth. That could be pretty hard to sustain.

—Richard Abbey

Survival Tips

A recommendation for list heaven. The 21st century is 25% over, and the New York Times has been running down the top 100 movies of the millennium so far, after polling hundreds of senior actors, directors and critics. Parasite, a great Korean satire, is number one. The list has a finger on the popular pulse, so cartoons like Up and Spirited Away are on it, as are superhero movies like The Dark Knight and Black Panther — and well they should be. The number of non-included Oscar best picture winners does make you wonder why we even care about them even more. No Nomadland, or Argo, or Crash, or Green Book etc. etc. Hours of fun are to be had arguing over it.

I would add Coco, a loving homage to the imagery of Mexico’s Day of the Dead, 1917 (mind-blowing cinematography), Simon Pegg’s Hot Fuzz (funniest movie of the century so far), Barbie, Searching for Sugar Man, and — this one will be controversial — La La Land. It’s so unfair that it’s remembered for the greatest Oscar snafu of all time. Have a great week everyone. 

More From Bloomberg Opinion

• Jonathan Levin: Stocks Are Defying the Naysayers. They Can Keep Going.
• Matthew Yglesias: Government-Owned Grocery Stores Aren’t the Solution
• Adrian Wooldridge: The Golden Age for Employers Is Ending

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