The crisis under the bull market feast: Valuations approaching perfection, but profit expectations are already showing signs of hidden risks.

Just as the US stock market is approaching historical highs, analysts are showing signs of weakening optimism towards corporate earnings, which means that the upward trend in the stock market may encounter obstacles in this earnings season. Citigroup's index tracking adjustments to US corporate earnings expectations - the number of analyst upgrades compared to downgrades - has been flat since August for the first time. At the same time, the forward price-to-earnings ratio of the S&P 500 index has reached 22 times, higher than the average level of nearly 19 times over the past decade. Evercore ISI strategist Julian Emanuel pointed out in a report that the impact of earnings on stock prices will "show differentiation and intensity, making it difficult to be a catalyst for pushing the index higher." He also added that the current market is already in a "near perfect pricing" state. This Tuesday, JPMorgan Chase (JPM.US), Citigroup (C.US), and other banks will be the first to release earnings reports, marking the peak of the third quarter earnings season for the US stock market. Based on early market reactions, investor expectations are already high. Taking Levi Strauss & Co. Class A (LEVI.US) as an example, although the clothing company raised its earnings guidance, its performance still did not meet market expectations, leading to a 13% single-day drop in its stock price on Friday despite a 42% cumulative increase in share price this year. The situation is similar for Tesla, Inc. (TSLA.US): despite the company setting a record for car deliveries in the third quarter (most analysts had already expected a strong quarterly performance), the stock price still declined. Tesla, Inc. will release its full quarterly report on October 22. Last week, driven by the optimistic prospects in the artificial intelligence field and the robust performance of the US economy, the US stock market reached a new historical high. However, President Trump's tariff threats against China subsequently reversed market sentiment. Nevertheless, US stock futures showed a rebound trend on Monday, as Trump signaled a willingness to reach an agreement with China. Lori Calvasina, Capital Markets Strategist at Royal Bank of Canada, stated that due to the intensification of the impact of tariff policies on companies, the proportion of companies exceeding earnings expectations this quarter may be lower than the previous quarter. Data shows that analysts currently expect a year-on-year increase in US corporate earnings of 7.4%, which would be the lowest level in two years. Calvasina pointed out, "For the market-leading companies in the S&P 500 index, market sentiment towards their earnings is at a critical turning point." On the other hand, strategists at Morgan Stanley believe that the deteriorating breadth of earnings expectations adjustments align with the typically weaker seasonal trends in October. They wrote in a report, "Given our expectation for further improvement in corporate earnings expectations for 2026, we believe the current adjustments are just a brief pause before the market continues its upward trend."