On this week's Money & Investing, Mitch Olarenshaw and I break down why the S&P 500 is smashing record highs while investors remain uneasy, examining the earnings data, capital spending and the risks driving this disconnect.

S&P 500 aggregate earnings growth currently sits at around 50% year on year, well above the already high 18% expectation. That is the primary catalyst behind the market's push to record highs, though if you strip out Google and Amazon, the figure drops to a still impressive 28%. That gap matters for sentiment: when a large share of index-level growth is generated by a handful of mega-cap companies, the record high looks less like broad-based corporate strength and more like concentrated outperformance — one reason investors can be uneasy even as the headline index climbs. It also means index performance is increasingly hostage to how a few companies execute, and any stumble at the top names would weigh disproportionately on the benchmark.

Microsoft's results sent shares soaring, while Meta's earnings disappointed — despite both companies being AI-exposed. The difference comes down to real cash flow versus spending without a clear return. It is a pattern familiar from past technology build-outs, when markets initially rewarded heavy capital expenditure but later demanded evidence that spending translated into revenue. Google's approach, which takes its cue from Kodak's mistake of refusing to cannibalise its own business, has positioned it as one of the stronger long-term plays.

Markets are shifting from early-cycle behaviour, where anything with momentum gets chased, into mid-cycle discipline, where investors want to see demonstrable profit and cash return rather than growth for growth's sake. The practical signal to watch on this front is how companies guide on capital expenditure in coming quarters — whether AI-related spending plans hold, expand, or get paired back — alongside free cash flow margins at the biggest spenders.

The 10-year Treasury yield sits around 4.6% to 4.7%. If it pushes past 5%, borrowing costs rise and safer, guaranteed returns start competing hard with equities. A new Fed chair and shifting rate hike expectations have added to the uncertainty. The 5% level is watched closely because it is a psychological threshold at which bonds and term deposits become materially more attractive alternatives to riskier shares, historically compressing the valuation premium investors will pay for growth stocks in particular.

Tariffs have not driven inflation the way many expected. The bigger concern is energy, with the Middle East conflict pushing oil prices and shipping insurance costs sharply higher — a pressure that flows through to nearly every part of the economy. Elevated freight and insurance costs feed into goods prices with a lag, which is why the inflationary impact of a supply disruption can surface months after the initial shock rather than immediately.

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