Wall St Week US equities' high valuations in scrutiny as earnings season approaches.

It's the most expensive U.S. stock market in two years. In coming weeks, earnings reports may challenge its valuation.

The S&P 500 (.SPX) is up over 9% year-to-date after its best first quarter since 2019. However, equities may be rising too fast, putting pressure on firms to perform well.

LSEG Datastream reports that the benchmark index trades at 20.7 times its anticipated 12-month earnings, near a two-year high of 21.2 reached in late March. At a time when Treasuries are more appealing than equities, weak earnings growth may discourage investors.

Investors will also listen to corporations' economic and inflation views to determine if the Goldilocks situation of strong growth and lowering consumer prices will persist.

In recent weeks, stubborn inflation has lowered expectations for how much the Fed will drop rates this year. Friday's stronger-than-expected jobs report lifted stocks.

“If we're going to continue to make significant gains in the stock market, we have to not just meet, but probably exceed... what those earnings estimates are,” said BMO Wealth Management chief investment officer Yung-Yu Ma. Delta Air Lines (DAL.N), BlackRock (BLK.N), and JPMorgan Chase & Co (JPM.N) will report first-quarter results next week. March U.S. consumer pricing data, due April 10, will also interest investors.

According to LSEG statistics, analysts predict first-quarter earnings growth of 5%. That would be the lowest since Q2 2023. They anticipate margin squeezes from high interest rates, rising commodity costs, and slowing inflation reducing corporate pricing power. Fourth-quarter 2023 earnings rose 10.1%.

Following a divergence in the share price performance of the Magnificent Seven stocks that led markets higher last year, megacaps like Nvidia (NVDA.O), Meta Platforms (META.O), and Microsoft (MSFT.O) may influence investor sentiment.

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