"The outlook for the S&P 500 in 2026 no longer reflects the relatively easy growth conditions seen during 2023 - 2024, when valuations were lower and expectations for interest rate cuts were still wide. Instead, the U.S. equity market is entering a phase in which most expectations have already been at least partially priced in, forcing investors to reassess the quality of corporate growth rather than simply extrapolating past trends."
"According to Reuters, earnings for companies in the S&P 500 are expected to grow by more than 15% in 2026, following an increase of around 13% in 2025. Notably, strategists surveyed by Reuters suggest that earnings growth in 2026 may become more broadly distributed, rather than being overly concentrated in a small group of large-cap stocks as in previous years."
"According to JPMorgan, the AI investment cycle has the potential to generate "above-trend" earnings growth for several years, supported by productivity gains, automation, and margin expansion. However, valuations make the 2026 outlook more sensitive, with the S&P 500 trading around 23 times forward earnings, well above the historical average of roughly 18 times. This does not imply that the market must decline, but it does suggest that the scope for further gains driven purely by valuation expansion in 2026 may be limited."
The S&P 500 enters 2026 without the relatively easy growth conditions of 2023–2024, and many positive expectations are already priced in. Investors must focus on the quality and breadth of corporate growth rather than extrapolating past trends. S&P 500 earnings are expected to rise more than 15% in 2026 after roughly 13% growth in 2025. Earnings growth may broaden beyond a handful of large-cap stocks, supporting more sustainable advances. AI and technology infrastructure investment remains central to growth through productivity, automation, and margin expansion. Elevated valuations near 23 times forward earnings limit valuation-driven upside and increase sensitivity to shocks.
Read at London Business News | Londonlovesbusiness.com
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