Moz Farooque ACCA
2 min read
This article first appeared on GuruFocus.
The S&P 500’s powerful rally may look expensive, but Fidelity’s Jurrien Timmer says it carries a crucial difference from the dot-com boom: corporate earnings, rather than expanding valuations, are doing the heavy lifting. That distinction matters for investors worried that today’s market is simply repeating 1999, though elevated valuations still leave stocks vulnerable if profit growth begins to crack.
Note that in 1999 the earnings peak was already well in place, and all the gains came from valuations. That’s the opposite of what we have today (for now at least), Timmer said.
Fidelity’s data show five-year earnings-per-share growth running at roughly 14% in 2026, while the five-year change in the price-to-earnings ratio is about negative 3%.
Around 1999, EPS growth was also roughly 14%, but P/E expansion contributed another approximately 15%. In other words, investors were increasingly paying more for each dollar of earnings as the dot-com bubble approached its peak.
Today’s market is different, but not cheap.
The S&P 500’s five-year cyclically adjusted P/E, or CAPE, stands at 33.4, according to Fidelity, versus roughly 35.6 around the 2000 peak. S&P Dow Jones Indices data show the benchmark was up more than 21% over the 12 months through Aug. 10.
Strong fundamentals have helped support those gains. S&P Global said corporate fundamentals helped push the index to record highs earlier this year despite a complicated macro backdrop. Fidelity has likewise highlighted capital spending as a potential support for earnings in 2026.
Investor Takeaway
Timmer’s argument makes earnings the market’s most important pressure point.
Investors should watch forward EPS estimates, profit margins and earnings revisions rather than valuation multiples alone. If profits continue rising rapidly, elevated stock prices can remain supported without requiring another major expansion in P/E ratios.
But that also creates the key risk. With CAPE already approaching dot-com-era territory, disappointing earnings would remove the fundamental cushion separating today’s rally from 1999.
For bulls, sustained profit growth keeps the comparison favorable. For bears, an earnings slowdown could make today’s already-rich valuations matter very quickly.
