Another day, another record high. This year, the S&P 500 has beat everybody’s expectations — continuously breaking new highs while even briefly surpassing 5,500 yesterday for the first time ever. At this pace, America’s biggest index could break its 2021 record of 70 all-time highs by year’s end. But whenever record highs enter the conversation, talks of bubbles aren’t far behind.

Record rally: The Magnificent Seven might have kickstarted the S&P 500’s banner run, but pulling the index out of a year-long rut was a team effort — even if hot commodities like AI and weight loss drugs did some heavy lifting. The index has gained 15.4% so far this year — and investment banks like Citi, Goldman, and Evercore predict further gains due to quality earnings, higher profits, and the success of smaller companies.

• On Tuesday, 10% of S&P 500 members hit a new 52-week high — while 66% are above their 200-day average, a marker of companies in an upward trend.
• FactSet’s bottom-up target price for the S&P 500 is 5,924, suggesting analysts expect a ~9% rise in the next year based on earnings.

Bubble, Bubble, Pop?

Despite more companies joining the rally, the S&P 500 is more concentrated than ever. The index’s top three stocks — NvidiaNVDA

, MicrosoftMSFT

, and AppleAAPL

— now represent a record 21% of the index. Nearly half of the index’s gains come from just four stocks, rousing concerns about a market bubble. However, according to Nir Kaissar, the founder of Unison Advisors, today’s S&P 500 is cheaper and of higher quality.

• The S&P 500 trades at 22x forward earnings, slightly above historical levels but well below the Dot-com bubble’s 30x in 1999.
• Since the early ‘90s, profit margins for these companies have tripled from 4% to 12%, with fewer “expensive stocks” in the index.

But there’s a catch… The S&P 500 might be the best it has ever been, but major money managers stress that the returns of the past decade are unsustainable — and might be hard to replicate going forward. BlackRock and Vanguard forecast US stocks to return just 5.4% and 3-5% annually over the next 10 years, respectively — less than a third of the annual returns seen since 2010 (BBG). Therefore, the real concern might not be a bubble or correction… but a slowdown.