A flat summer could provide the setup for a year-end rally.

Smashing second-quarter earnings have created an interesting dynamic heading into the traditionally slower late-summer period for market: While the S&P 500 has been flat, it is actually getting cheaper. The forward price-to-earnings multiple for the S&P 500 has slipped below the 20 times mark, and is holding at levels last seen during the Liberation Day selloff of April 2025.

In effect, that means investors are paying the smallest amount of cash for each dollar of expected earnings in around fifteen months.

That could be a key metric for the S&P 500 itself, which has been treading water around the 7,500-point mark since mid-May.

The fact that this level has held firm despite a bear market slump for the PHLX semiconductor index, a 10% correction in the Magnificent Seven tech giants (which has since reversed), and a surge in Treasury bond yields could be a good sign.

"The longer we tread around this mark, the better it may be for the bulls," says Jay Woods, chief market strategist at Freedom Capital Markets. "Sometimes a rest is ideal for a market that has made a tremendous run."

The S&P 500 has surged by more than 83% since its trough in October of 2023, powered by a massive rally in AI and related tech stocks.

That rally has faded, but the market is being supported by a furious rotation into some of the most-unloved sectors.

Healthcare stocks, for example, have risen more than 10% since the broader market stall on May 15, with an 11% advance for the financial sector and a 3% gain for industrials.

An equal weighted index of the S&P 500, in fact, has risen more than 7.7% since mid-May, besting gains for the cap-weighted benchmark by more than five and half percentage points. It's also topped the tech-focused Nasdaq Composite by nearly 10 percentage points.

Tom Lee, managing partner and the head of research at Fundstrat Global Advisors, thinks the market's broader tide could be ready to shift.

"I think August is a month to recover the flat performance of June and July," he told CNBC on Monday. "Earnings estimates have gone up a lot, and the market is now kind of like a coiled spring. We could get to 7,800 points on the S&P 500 this month."

He still sees the risk of a big autumn drawdown during a period of seasonally elevated volatility. But he thinks the S&P 500 will finish north of 8,000 this year, and suggests 2027 will be "one of the best years" for the market.

Savita Subramanian, head of U.S. equity strategy at Bank of America, is more cautious.

She notes that the price-to-earnings compression for the S&P 500 is tied to a big increase in forward earnings assumptions, and says that valuations for the market's biggest companies could fall as they continue to spend huge sums on AI-related capex.

"If the AI spending heralds an industrial revolution, historical multiple analysis is less relevant," Subramanian says. "But if it proves a more conventional capex cycle, history argues for a 15% to 30% derating as the market reprices capital intensity over innovation."

Morgan Stanley's Mike Wilson, however, sees it differently, arguing in a note published Monday that the biggest hyperscaler stocks combine both attractive relative value with "meaningful optionality" tied to their industry leadership.

"The hyperscalers have outperformed [semiconductor stocks] by nearly 20% over the last 4 weeks, and we believe that will continue over the next several months," he says. Still, he notes that performance diversion, such as the disparity seen between Microsoft and Meta Platforms last week, remains a risk.

A host of issues -- from the impact of the U.S. war with Iran on oil prices and inflation, to the selloff in the bond market that has driven Treasury yields higher, to the risks tied to the midterm election season later this fall -- continue to hover over markets.

But the S&P 500's ability to absorb some hefty spring and summer risks, while holding its ground and allowing for a seemingly healthy rotation rather than an exit of capital, should augur well for the months ahead.