The US stock market, approaching historical highs, faces a reality check: Can corporate earnings keep up with the rise in stock prices?

After a sustained strong rebound, the U.S. stock market is facing a severe reality test. On Wednesday, the 25th, U.S. stock index futures traded mixed. Against the backdrop of renewed hopes for interest rate cuts and a ceasefire agreement between Iran and Israel brokered by the U.S., S&P 500 futures rose slightly by 0.02%, Dow futures fell by 0.1%, while Nasdaq futures, dominated by technology stocks, increased by 0.2%. Although the S&P 500 index is just a step away from its historical high, its continuously rising valuation has made some bullish investors uneasy. There are widespread concerns in the market about whether the current rise in stock prices has outpaced the actual growth rate of corporate earnings. Data shows that the S&P 500 index currently has a forward 12-month price-to-earnings ratio of 22 times, which is 35% higher than its long-term average. Strategists at Bank of America have tracked 20 valuation metrics, and the results indicate that the S&P 500 index appears "expensive" across all these metrics. Although market analysts often remind that valuation is not a tool for timing stock price movements, the current rapid rise in stock prices has made the earnings growth of S&P 500 constituents seem inadequate, even causing some optimistic investors to start feeling uneasy. Fed Rate Cut Expectations: A New Hope for the Market? Models analyzed by Bloomberg Industry Research indicate that assuming stock prices remain unchanged, the earnings of the S&P 500 index need to grow by 30% over the next year to return to "fair value" levels. In addition to earnings growth, analysts believe that the Fed's rate cuts will also be another way to narrow the gap between fundamentals and market prices. Fed Chairman Jerome Powell reiterated yesterday that policymakers do not need to rush to adjust policies, but the decline in inflation and weakening labor recruitment may suggest that rate cuts could come earlier this year. Powell's comments to Congress on Tuesday boosted market sentiment, as he indicated that policymakers might take action to cut rates "sooner rather than later." Investors are closely watching his further testimony on Wednesday to validate bets on policy easing. Charles Schwab's senior investment strategist Kevin Gordon stated: "There may be excessive earnings optimism in the second half of the year, and coupled with the fact that valuation multiples are nearing cyclical highs, the pressure for earnings to exceed expectations will be even greater. This is not an impossible task, but the bar is set high." Market Sentiment is Optimistic, but Risks Remain Despite the spread of concerns, there are still bullish voices on Wall Street. BMO Capital Markets' chief investment strategist Brian Belski raised the year-end target for the S&P 500 index from the previous 6,100 points to 6,700 points. He believes that as market concerns about tariffs gradually fade, market performance is broadening, reactions to everyday comments are becoming calmer, and actual corporate guidance after the second-quarter earnings season will increase This Friday, the Federal Reserve's favored inflation indicator—the Personal Consumption Expenditures (PCE) report—will be released. Economists expect that the annual "core" PCE, excluding the more volatile food and energy costs, will rise in May compared to April. Additionally, investors will be closely watching for any signs that Trump's tariffs are driving up prices. Investors are also closely monitoring the progress of the ceasefire agreement in the Middle East, which currently appears to be holding. Since President Trump criticized Israel and Iran for violating the agreement to pause hostilities for diplomatic space, there have been no new reports of attacks