Key signals determining the trajectory of U.S. equities in the second half of the year

Market expectations project a 22% earnings growth rate for the S&P 500 in Q2, with further acceleration anticipated in Q3 and Q4. However, Q3–Q4 may well mark the peak in earnings growth momentum. This is not merely institutional consensus—it aligns with historical patterns: over the past 70+ years, in normal years, the ceiling for earnings growth has typically hovered around 20%. Why do some years show earnings growth as high as 200% in the chart below? That reflects low-base effects during economic crises: Returning to the headline: the room for continued rapid earnings growth is shrinking—the acceleration is likely already at or near its peak. Thus, earnings growth may already be fully priced in. 2. Has the sustained high growth in capital expenditures been fully priced in? A key driver behind the rally in AI-related stocks has been soaring capital expenditures (capex) by tech giants. So, could this expectation become excessive? We must monitor whether capex growth among tech giants can sustain its current rapid pace. If such high growth cannot continue—regardless of whether current expectations are high or low—it implies the market has already fully priced in fundamentals, weakening the upward momentum for related companies’ stock prices. Tech giants’ capex growth rates: Different institutions report varying figures, but overall, capex growth is expected to decelerate starting next year: Capex growth has likely peaked—at least within a 1–2 year horizon. 3. Has the supply-demand imbalance in the AI supply chain been fully priced in? The AI supply chain—especially semiconductors—has driven U.S. equity gains amid acute supply shortages. Prices for memory chips and optical communication components have surged rapidly, boosting profits for related firms. A major driver of stock price appreciation has been the market’s anticipation that this supply-demand imbalance will persist. If this imbalance fails to deepen or extend, it suggests the market has already fully priced in such imbalances. Will this imbalance persist? We can examine profit margins of relevant companies: higher margins signal stronger pricing power—and thus greater supply-demand imbalance. As shown in the chart below, semiconductor industry net profit margins have already reached historically elevated levels above 50%. Even if these margins remain stable, their potential for further expansion is diminishing. Moreover, margins are a critical contributor to valuation. For details, see: "P/E Ratio Returns to 2000-Level Peaks—How Far Are We From a Bubble Burst?" As previously noted, high margins command premium valuations—but since early 2026, valuation (red line) and margin (blue line) have diverged, signaling the market is pricing in the unsustainability of persistently high margins: We also observe that the S&P 500’s net profit margin has hit an all-time high: If margins cannot rise further, it implies the market has already fully priced in operational quality. 4. Valuation The higher the valuation percentile, the more fully the market has priced in future earnings growth. For related analysis, see: "Shiller P/E Now Exceeds 1929 Crash Levels—How Long Can the Bubble Last?" "U.S. Equity Upside Has Been Severely Compressed" Even after adjustments, valuation percentiles remain near the 90th percentile historically—another indication that earnings growth has largely been priced in. 5. Has growth in the AI application layer been fully priced in?

Stock splits truly boost share prices—but not for the reasons you think

The share-price increase following a stock split reflects correlation—not causation. Stock splits are enjoying a resurgence, and markets are swiftly rewarding companies that announce them. Alphabet (Google’s parent), Amazon, Tesla, and GameStop are among the latest batch of firms seeking shareholder approval for splits—each enjoyed a post-announcement share-price bump. Beyond increasing the number of shares outstanding, a split changes nothing fundamental—making the subsequent price rise puzzling, especially for proponents of the efficient-market hypothesis. Ultimately, market enthusiasm stems less from the split itself and more from the perception that a split signals impending success. Companies tend to pursue splits precisely because their share prices have recently risen sharply—and stocks exhibiting positive momentum often continue rising. “Stock splits neither create nor destroy value,” says Christopher Harvey, Head of Equity Strategy at Wells Fargo Securities. “Stocks that split typically exhibit positive price momentum, reflect strong overall company health, and are seeing improving fundamentals. That’s what the market focuses on—and splits usually occur only under such conditions.” In other words, the relationship between splits and price gains reflects correlation—not causation. But the numbers speak volumes: according to Bank of America Securities researchers, since 1980, S&P 500 stocks announcing splits have, on average, outperformed the index by 16 percentage points over the following 12 months. In recent years, major tech firms—including Apple, Nvidia (NVDA), and Tesla—have announced splits; all had exceptionally high share prices. Yet lesser-known names—including Sherwin-Williams (SHW), Amphenol (APH), and McCormick (MKC)—have also joined the trend. Dow Jones Market Data shows that, over the past decade, roughly 20 U.S. public companies have executed splits annually. The true golden age of stock splits was the late 1990s tech bubble. From 1997 to 2000, an average of 65 U.S. companies split shares each year as the market surged toward its peak. Split activity revived in the years preceding the Global Financial Crisis—and again rebounded near the end of another bull market. Today, the median share price among S&P 500 constituents stands at approximately $118. Yet several firms trade far above this level—making them potential split candidates. The most expensive U.S. stock is Berkshire Hathaway’s Class A shares (BRK.A), which have never been split and recently traded at $517,000—changing hands only a few thousand times per day. Warren Buffett may never split these shares—but investors have an alternative: Berkshire’s Class B shares, representing 1/1,500th the economic interest of Class A shares—or roughly $350 recently.

Sherwin Williams (SHW) Stock Pulls Back As Margin Strength Meets Premium Valuation

Jul 29, 2026

Sherwin-Williams stock pulled back despite strong Q2 2026 earnings and margin expansion, sparking debate over its premium valuation amidst concerns about raw material inflation and soft end markets. Analysts question the sustainability of recent pricing gains against economic headwinds.

Simply Wall St

2026-04-17

Loop Capital Adjusts Price Target on Sherwin-Williams to $385 From $400, Maintains Buy Rating

2026-04-21

Bank of America Cuts Sherwin-Williams Price Target to $365.00

2026-04-27

Concurrent Investment Advisors LLC Increases Position in Sherwin-Williams Co

2026-04-28

Sherwin-Williams Stake Reduced by Flossbach Von Storch SE

2026-04-29

Sherwin-Williams Receives 'Moderate Buy' Consensus from Analysts