Wall Street sees rare earnings growth supporting S&P’s bull case
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A Wall Street sign near the New York Stock Exchange. Photo by Yuki Iwamura/AP filesArticle contentFor skeptics waiting for Corporate America’s growth engine to stall out, there’s still fuel in the tank, according to sell-side analysts, whose aggregated bottom-up price targets suggest the pace of income growth in the S&P 500 index will accelerate each year through 2027, data compiled by Jefferies show. That would translate into three consecutive years of double-digit earnings expansion, a rare development that has historically coincided with above-average returns in the S&P 500.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentArticle contentA lot needs to go right on the monetary and geopolitical fronts for the forecast to come to fruition. And still, the estimate depicts a sense of confidence among Wall Street researchers that a key pillar of support for the three-year stock market bull run, corporate earnings strength, remains intact despite worries that positioning has become stretched and valuations elevated.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.We apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Play VideoArticle contentInvestorCanada's best source for investing news, analysis and insight.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article content“Earnings growth is not only expected to maintain its current trajectory above the long-term historical average but may also be taking another leg higher,” said Andrew Greenebaum, senior vice-president of U.S. equity product management at Jefferies. “Add that to the fact that fundamentals continue to look directionally supportive of U.S. equities broadly.”Article contentWith fourth-quarter earnings season about four weeks away, analysts expect S&P 500 companies to post an 8.3 per cent profit growth, data compiled by Bloomberg Intelligence show. That would push the full-year figure to 12 per cent, according to BI.Article contentFor next year, estimates have climbed five per cent from the peak of tariff-related uncertainty to US$310 per share, implying a 13 per cent year-over-year earnings growth. The figure is expected to rise to 14 per cent in 2027.Article contentArticle contentIn the past 35 years, there have only been two other instances when the S&P 500 posted double-digit earnings growth for three straight years: in 1993-1995 and 2003-2005. Each time, the benchmark equities gauge clocked a 13 per cent yearly return, beating its multi-year average of 10 per cent.Article contentRead More Elon Musk's SpaceX sets US$800 billion valuation, confirms 2026 IPO plans Nasdaq seeks SEC approval for 23-hour trading during weekdays Article contentThe information technology, materials and industrials sectors are forecast to post the highest year-over-year earnings growth in 2026, data compiled by BI show. Consumer staples stocks, often known for their defensive characteristics, are expected to post profit expansion that trails the broader market.Article contentSell-side analysts covering S&P 500 stocks are not known for being skeptics, so their expectations may already be stretched.Article content“The earnings picture is definitely strong, but when expectations are that elevated, we typically see some volatility if results don’t meet forecasts,” said Michael Casper of Bloomberg Intelligence.Article contentUncertainty about the pace of Federal Reserve interest-rate cuts lingers, and the full impact of U.S.
President Donald Trump’s tariffs is yet to filter through the economy.Trending McKinsey plots thousands of layoffs in consulting slowdown Work Garry Marr: How raiding your TFSA before the end of year could save you thousands Personal Finance The Federal Reserve’s rate cut was a clear signal to investors Investor CRA's 100-day plan results are not the presents Canadians want or need Taxes Bank of Canada expected to hold interest rate steady through 2026 as inflation cools Economy Article contentTo some on Wall Street, a reason for optimism is coming from a pickup in profit expansion outside the small group of tech megacaps that have driven much of this rally. A version of the S&P 500 that excludes the so-called Magnificent Seven companies is estimated to post 13 per cent earnings growth in 2026, not far below the 18 per cent reading expected for the seven high-flyers. Optimism over fiscal and monetary stimulus may help as well.Article content“The backdrop is positive for risk assets,” wrote Manish Kabra, head of U.S. equity strategy at Societe Generale, who expects the S&P 500 to reach 7,300 next year, and favors sectors such as industrials, utilities and financials. “It’s too early to call the bull run over.”Article contentBloomberg.comArticle contentShare this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information. McKinsey plots thousands of layoffs in consulting slowdown Work Garry Marr: How raiding your TFSA before the end of year could save you thousands Personal Finance The Federal Reserve’s rate cut was a clear signal to investors Investor CRA's 100-day plan results are not the presents Canadians want or need Taxes Bank of Canada expected to hold interest rate steady through 2026 as inflation cools Economy