Behind the S&P 500's New High: Rate Cut Expectations, Earnings Revisions, and the Dislocation in the Crypto Market

The S&P 500 reached a new intraday high, rising by 0.2%. This may seem like just another routine record, but the underlying driving logic is quietly changing. From shifts in Federal Reserve policy expectations, corporate earnings revisions, to retail investor sentiment recovery, and Coinbase becoming the first crypto-native company to be included in the S&P 500—all of these are reshaping the relationship between the US stock market and the crypto market.

The Triple Drivers Behind the S&P 500’s New High

Expectations of Fed rate cuts become the core support

Federal Reserve Board member Milani recently broke the news with a direct statement. He clearly indicated that this year, the Fed must cut rates by more than 100 basis points, as the current high interest rates are dragging down the economy. This statement has completely changed market expectations for 2026—from “inflation is still the enemy” to “it’s time to save the economy.”

Core inflation is now close to the 2% target, giving the Fed more policy space. Although US bank strategists suggest that rate cuts may not happen before Powell’s successor takes office, the market is already pricing in multiple rate cuts this year. This shift in expectations has directly driven a rebound in stocks, as rate cuts typically lower corporate financing costs and boost asset valuations.

Corporate earnings revisions turning positive rarely

Q4 EPS revision data is particularly noteworthy. Usually during earnings season, analysts gradually lower earnings forecasts to help companies beat expectations—averaging a 1.6% downward revision within quarters over the past five years. But Q4 2025 broke this pattern: S&P 500 bottom-up EPS expectations did not decline but increased by 0.5%, revised upward from an initial 7.1% YoY growth to 8.3%.

This rare positive revision mainly comes from the information technology sector, with EPS estimates raised by 6.2% (adding $17.9 billion). Of the 108 companies issuing Q4 guidance, 46% provided positive guidance, above the five-year average of 42%. This indicates that corporate confidence in future earnings is rebounding strongly.

Uncertainty over tariffs easing

The U.S. Supreme Court is currently reviewing the legality of tariffs imposed by the Trump administration. According to analysis from Wells Fargo, if tariffs are ruled unconstitutional and revoked, the pre-tax profit of S&P 500 companies in 2026 could increase by 2.4% compared to 2025. The consumer staples and industrial sectors would benefit most (up 6.3% and 6.2%, respectively), as these industries are highly import-dependent and have limited ability to pass on costs.

Although the Supreme Court has yet to make a ruling, the market is already pricing in this “profit recovery” scenario. Even if tariffs remain, the Fed warns that economic growth could slow by 0.5-1.0%, making investors more inclined to believe that rate cuts will come sooner.

Retail investor sentiment recovers but far from overheating

The AAII investor sentiment survey shows a significant recovery from the extreme pessimism of April-May 2025: bullish sentiment at 42.5% (vs. historical average of 37.5%), bearish at 30.0% (vs. average of 31.0%), with a bullish-bearish spread of +12.5%.

But there’s an important detail behind this data: the current bullish-bearish spread of +12.5% is well below the peak of +35% to +40% seen in early 2021, and the bullish proportion of 42.5% is far below the over 60% in 2021. In other words, the market is in a mildly optimistic state, far from extreme euphoria. This suggests room for further gains but also indicates that risks are not at extreme levels.

Dislocation and insights in the crypto market

Coinbase’s inclusion in the S&P 500 as a symbol

Coinbase becoming the first crypto-native company to be included in the S&P 500 marks a milestone for mainstream financial recognition of the industry. In 2025, Coinbase performed impressively: obtaining EU MiCA licensing, lending over $1 billion in Bitcoin-backed loans (now supporting ETH), and completing 10 acquisitions to expand its product line.

But it also reflects a reality: crypto assets are increasingly being incorporated into traditional financial valuation frameworks. As Coinbase becomes part of the S&P 500, its performance is increasingly influenced by macroeconomic expectations rather than solely crypto market sentiment.

BTC’s relatively lagging rebound space

According to Santiment data, three months after Bitcoin hit an all-time high of $126,000 in October 2025, gold rose 11%, the S&P 500 up 3%, but BTC fell 26%. This contrast is quite interesting—while traditional safe-haven assets and US stocks are rebounding, BTC is declining.

Personal view: This dislocation may actually indicate potential for a BTC rebound. Expectations of rate cuts benefit all risk assets, but as the riskiest among them, BTC could see a more dramatic rebound once sentiment shifts. Of course, this also depends on whether the Fed will indeed cut rates quickly as the market expects.

Next week’s data is critical

Next week’s CPI, PPI, retail sales, and other data will directly influence the credibility of rate cut expectations. If inflation pressures persist, the Fed may have to slow down its rate cuts, which could pressure stocks and crypto markets. Conversely, if data are moderate, expectations for rate cuts will be further reinforced.

Summary

The new high of the S&P 500 is driven not only by technical breakthroughs but also by a shift in macro expectations—from “fighting inflation” to “saving the economy,” from downward earnings revisions to rare positive revisions, and from extreme retail pessimism to mild optimism—all pushing US stocks higher.

Coinbase’s inclusion in the S&P 500 signifies mainstream recognition of crypto assets, but it also means the crypto market’s connection to macroeconomic factors will tighten. The relatively lagging performance of BTC may harbor rebound opportunities, provided rate cut expectations materialize. Next week’s economic data will be key to testing all this.

For investors, the current environment offers both opportunities and risks. Opportunities stem from the dual support of rate cut expectations and earnings revisions, while risks lie in whether these expectations will actually be realized. Strict position management and close attention to next week’s data may be the most prudent approach.