According to the Intelligent Financial News app, the US stock market has performed well over the past two years. The S&P 500 index has surged by 49% and has hit multiple historical highs.

Now, bulls and bears are debating whether the upward trend will continue or there will be a sharp pullback.

Bulls believe that the Fed may cut interest rates twice this year, stimulating the economy and boosting corporate profits.

They point out that the slowdown in inflation will enable the Fed to take action. In the 12 months to May, consumer prices excluding food and energy rose by 3.4%, the lowest increase in three years.

Bulls also note that corporate earnings have begun to rise. FactSet data shows that first-quarter earnings per share for S&P 500 constituent companies increased by 5.9% year-on-year.

Analysts predict that earnings growth for this quarter will be 9%. If this prediction comes true, it will be the largest increase since the first quarter of 2022.

However, not everyone agrees with this optimistic outlook.

Bears believe that corporate earnings may be severely overvalued. They believe that the market valuation is too high.

FactSet data shows that as of June 14th, the expected P/E ratio of the S&P 500 index was 21 times, far higher than the 5-year average of 19.2 times and the 10-year average of 17.8 times.

Bears also expect the Fed to maintain high interest rates for a longer period of time. According to the median forecast of Fed officials, interest rates will only be cut once this year. High interest rates are not good for the economy, and a bad economy is not good for corporate profits, nor for the stock market.

Bears believe that inflation is still a thorny issue. In the 12 months to April, the US personal consumption expenditure (PCE) price index was 2.7%, higher than 2.5% in January and higher than the Fed's 2% target. This index is a favored measure of inflation by the Fed.

Hedge fund mogul adds to the bearish camp.

Prominent American hedge fund manager Doug Kass has issued a warning about the US stock market.

Here are Kass's views:

First, the stock market is top-heavy, with five large technology companies distorting returns.

He is referring to internet search giant Alphabet (GOOGL.US), retail and technology giant Amazon (AMZN.US), social media giant Meta Platforms (META.US), software giant Microsoft (MSFT.US), and semiconductor giant Nvidia (NVDA.US).

Kass said: 'Nvidia has contributed 35% of the S&P index's performance in 2024, while the other four companies have contributed a 26% annual return.' Since the 1960s, these five stocks have never contributed such a large return to the market.

Second, corporate profit performance also depends on large technology stocks.

In the first quarter, after excluding the seven major technology stocks, corporate profits fell by 2%. In addition, Kass said, 'profit expectations are unrealistic' and far above the historical average.

Thirdly, Kass quoted top economist David Rosenberg as saying that valuation is an issue. Rosenberg pointed out that since October last year, profit forecasts for 2025 have been raised by 2.6%.

"Since then, how has the S&P 500 performed? It has risen 26%. The stock price increase is 10 times the profit expectation," Rosenberg said. "This has always been, and still is, a multi-driven market, not a profit-driven market."

Fourthly, Kass said, "Stocks are rarely as overvalued as they are now relative to interest rates."

"The dividend yield of the S&P index is only 1.32%, while the dividend yield of six-month US bonds is 5.37%. The stock risk premium is at its lowest level in nearly 20 years."