Is the stock market going up because corporations are more profitable?

That's part of it, however if increased profits were the only factor in play you'd expect to see the PE (price/earning ratio) stay relatively constant. That's not the case. PE ratios for the S&P 500 are rising (not to the frother levels that existed prior to the Dot.com and 2008 crashes).

Some additional insight I queried Claude to produce. My take: Stocks are certainly getting a little frothy, however not to the level of the two previous market crashes. The S&Ps price rise has been driven by the Mag 7 companies which now represent 35% of that index (by market cap) and 42% of the index's gain for 2025.

What the three-tier view reveals:

The dot-com bubble was overwhelmingly a large-cap phenomenon. The S&P 500 PE screamed to 46x while mid and small caps were elevated but not nearly as extreme — because the mania was concentrated in mega-cap tech names like Cisco, Intel, and the telecom giants that dominated the S&P 500

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Today is the opposite pattern. Large caps at ~33x tower over mid caps (~20x) and small caps (~20x) — a spread that's historically unusual. The Mag 7 concentration effect means the S&P 500's PE is being dragged up by a handful of names. A genuine total-market blended PE (weighted by market cap) comes out closer to 25–27x — elevated, but less extreme than the headline S&P 500 figure implies.

The 2008–09 and COVID spikes show as gaps or extreme readings across all three tiers, with small caps particularly distorted since more small companies have losses in recessions.

Corporate America has never been this profitable

Chart R

June 5, 2026

AI is lifting almost everything in sight, from minting new millionaires at a historic pace to vaulting an entire country up the ranks of the world's biggest stock markets. And, with the US sitting at the center of that boom, corporate America is squeezing more profit out of every dollar it brings in than ever before.

In the first quarter, S&P 500 companies kept nearly 15 cents of profit for each dollar of revenue it made, according to FactSet — the highest figure recorded since the data provider began tracking the metric in 2009, and more than double the long-run average of ~6 cents going back to 1946.

Much of it comes down to the index’s new center of gravity: a handful of unusually profitable tech giants. The Magnificent 7 alone account for more than a third of the S&P 500’s total market value, and they’re punching far above their weight, posting 63.2% earnings growth in Q1, which is nearly 4x the rate of the other 493 companies.

Bloomberg data through Thursday shows the trend still holding, with both operating and net profit margins at their highest in at least two decades. This means that companies are making more from their core businesses, as well as keeping more for shareholders after costs, interest, and taxes are paid.

Both measures have climbed sharply back from the depths of the financial crisis and the Covid-era shock, with the latest leg ripping higher on strong AI demand, blockbuster mega-cap earnings, and years of sweeping layoffs and “efficiency” pushes that have become a staple of Big Tech earnings calls.

Still, the profit boom comes with concentration risk. Last week, Goldman Sachs warned that companies benefiting from AI infrastructure are expected to account for roughly half of all S&P 500 earnings growth this year, leaving more of the outlook riding on whether the massive AI buildout eventually translates into durable profits.