The S&P 500 is on a tear, and a rate cut could fuel its run. Are US megacaps overvalued?

The S&P 500 remains on a tear, unbothered by drama surrounding the US elections: It has posted gains in nine of the last 11 weeks, Bloomberg notes, including 2% last week as a steadyslowdownin the labor market boosted expectations the US Federal Reserve could start to cut interest rates as early as September.

By the numbers: The S&P 500 was up 0.54% on Friday to close at 5,567, while the Nasdaq Composite edged up 0.90% to 18,352.76. Both indexes ended the week at record highs after labor data released on Friday showed US unemployment up slightly at 4.1% — its highest November 2021.

Cooler US jobs data could prompt the Fed to start trimming interest rates in the fall, Reuters reported. “This report puts the Fed in a comfortable spot,” said Peter Cardillo, a chief market economist at institutional brokerage firm Spartan Capital Securities. “If this continues next month, with no increases in hourly wages, then I think we'll see a rate cut in September and another one in December.”

Remember: A rate cut will almost-inevitably see investors allocate more capital to equities.

But it may be time to to moderate your expectations for US equities in the coming decade. While valuations are admittedly bad tools to use when trying to time the market, Bloomberg still notes that that the S&P 500 is trading at 26x earnings — higher than on any single election day as far back as 1990. That suggests “the elevated state of equities may be reason to lower expectations for their performance under whoever wins the election in November,” it writes.

A decade of “Meh” in the making? “Today’s lofty valuations for US megacaps suggests significant underperformance over the coming decade, and because they make up such a dominant share, returns for the overall US market are also likely to be pretty muted,” Richard Bernstein Advisors’ deputy chief investment officer, Dan Suzuki, told the business information service.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.6% at Thursday’s close on turnover of SAR 4.9 bn. The index is down 2.6% YTD.

In the green: Al Rajhi Takaful (+8.9%), Al Jouf (+6.2%) and Saico (+5.9%).

In the red: AlBaha (-7.7%), Miahona (-4.2%) and Smasco (-2.6%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.6% at Thursday’s close on turnover of SAR 44.9 mn. The index is up 5.6% YTD.

In the green: Apico (+11.2%), Group Five (+9.7%) and Armah (+7.9%).

In the red: Fadeco (-5.3%), Horizon Educational (-4.8%) and Pan Gulf (-4.7%)

CORPORATE ACTIONS-

Tadawul-listed telecom company Zain KSA will distribute a dividend of SAR 449.4 mn at SAR 0.50 per share for FY 2023 starting Thursday, 18 July, it said in a disclosure to Tadawul.