By Paul R. La Monica

Summer is almost here -- but the stock market is far from overheating.

Yes, the market has been on fire. The S&P 500 index has advanced 1.1% this week, and is headed for its eighth consecutive weekly gain. The Nasdaq Composite has risen 0.8%, even though Nvidia's earnings failed to ignite a rally in its stock. The Dow Jones Industrial Average was the star of the show, rising back above 50,000 after gaining 2.4%, as the Trump administration's quantum computing spending spree pushed IBM to its best week in 25 years.

But fundamentals are the real story. The latest weekly jobless claims numbers remained relatively low at just 209,000, pending home sales were robust, and the Atlanta Fed's GDPNow tool is pacing for 4.3% growth in the second quarter. The strong growth might keep new Federal Reserve Chair Kevin Warsh from cutting interest rates, but the stock market might not need it. This coming week's data -- including consumer confidence, durable goods orders, and the personal consumption expenditures inflation report -- could change the picture, but for now it's one that suggests monetary policy doesn't need to be part of the discussion.

"This is a healthy economy that clearly doesn't need for the Fed to lower rates," notes Ed Yardeni of Yardeni Research.

Earnings have been even more impressive. Corporate America is close to wrapping up a stellar first-quarter earnings season, with 84% of companies in the S&P 500 beating consensus forecasts, topping the 10-year average of 76%. But growth was the real story -- earnings rose 28% from a year ago, the strongest quarter since the fourth quarter of 2021, led by strong results from the tech, materials, and consumer-discretionary sectors.

With earnings from AutoZone, Marvell Technology, Salesforce, and Costco Wholesale on tap this coming week, traders will likely be looking for more clues about the impact of artificial intelligence on sales and profits. Celine Woo, a portfolio manager at the Lazard Next Gen Technologies exchange-traded fund, says that goes beyond the big semiconductor, hardware, and software firms and extends to other sectors.

"AI is the most transformative technology of our lifetime and the most important investment opportunity that goes beyond tech," she says.

The strong earnings also have a way of keeping valuations under control. The S&P 500 now trades for 21.2 times 12-month forward earnings, down from 22.2 times at the start of the year, even after gaining 9.4% so far in 2026. And if AI is only now beginning to boost profit margins, investors won't have to worry about the multiple for a while, says Linda Bakhshian, chief investment officer of equities at Nomura Asset Management International.

"If we were in the later innings of this cycle, you'd have to look at valuations as being more difficult," she says. "[The U.S. economy still has] the broadest engine of growth."

So ignore the heat -- because this stock market may only be getting hotter.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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May 22, 2026 14:10 ET (18:10 GMT)

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