After what was a challenging 2022 for the equity market, stocks have experienced a steady recovery with major indexes continuing to touch on all time highs. Many investors question whether this momentum can continue. With that in mind, today’s weekly market commentary examines earnings and whether earnings are driving – and can continue to drive – the market higher.
The enclosed chart plots the year over year earnings growth for the S&P 500. The chart goes back to December of 2022 and continues through March of this year, showing quarterly earnings. Two data points are plotted for each quarter. The consensus year over year (Y/Y) earnings growth is represented by the purple diamonds. This metric represents the consensus analyst estimates at the start of each respective quarter. And then for each quarter, the actual Y/Y earnings growth is represented by the blue bars.
As the chart shows, and as the author explains, “S&P 500 earnings growth has increasing outpaced analyst estimates, indicating the corporate America has delivered a stronger profit cycle than many expected. Additionally, despite the S&P 500 returning ~9% year to date through May 12, 2026, its forward price-to-earnings ratio (P/E) has fallen from 22x at the start of the year to roughly 21x – a sign that earnings rather than investor sentiment have driven the market higher. In our view, this is evidence of a real business spending boom, with capital from large technology companies translating into revenue and profit for the businesses supplying the AI buildout.” – AOM 475
This momentum has certainly been evident over the past three quarters. As is shown on the chart, actual Y/Y earnings have approximately doubled what analysts’ expectations had been for the quarters ending September 2025, December 2025, and March 2026. Much of that growth was driven by those companies participating in the build out of infrastructure that supports the Artificial Intelligence megatrend.
Though that might be a red flag for some investors, the piece ends by explaining, “a narrow group of stocks leading the market higher is a fair reason for caution, but we believe the foundation matters. In our view, stock prices ultimately follow earnings, and earnings have been doing real work rather than leaving P/E multiples to do all the heavy lifting. The AI investment cycle is also showing up in places that take years to build out, including chip fabrication capacity, data center construction pipelines, and power grid upgrades. With the buildout still in early innings, we believe the conditions for continued earnings growth remain in place.” – AOM 475
We would ask that you review the attached piece at your convenience and please let us know if you have any questions or if you would like to discuss it further. And as we always end this correspondence, please remember that regardless of current momentum and regardless of the key takeaways in this weekly perspective, we will continue to monitor and manage with a thoughtful approach based on your specific long-term objectives. Thank you for your continued confidence and look forward to speaking soon.
