4 years of double digit gains
2026 is tracking to be the fourth consecutive year of double-digit market gains, driven primarily by earnings growth rather than valuation expansion. Despite the market being up 9% year-to-date, valuations have actually compressed as 2027 S&P 500 earnings estimates rose from $350 to $400, with tailwinds from AI infrastructure, onshoring trends, and government spending.
Summary
The speaker discusses the market's performance in 2026, noting that it represents the fourth year of double-digit gains following strong performances in 2023, 2024, and 2025. Historically, when markets post three consecutive years of strong gains, the fourth year tends to also perform well. The key driver of 2026's market gains has been earnings growth rather than multiple expansion. At the start of 2026, consensus 2027 S&P 500 earnings were estimated at $350 per share; by the time of this discussion, estimates have risen to $400, representing a $50 increase. Notably, the price-to-earnings ratio on 2027 earnings has actually compressed from 19.4x to 18.4x, meaning the stock market has become cheaper despite being up 9% year-to-date. The speaker expresses optimism about further earnings revisions upward, citing several structural tailwinds supporting earnings growth. These tailwinds include investment in AI and energy infrastructure through legislation, a trend toward onshoring of manufacturing and business operations, and residual government infrastructure spending that continues to support economic activity and corporate spending.
Key Insights
- The speaker claims that historically, when markets post three years of strong gains, the fourth year actually tends to be pretty solid, contradicting potential expectations of mean reversion
- 2027 S&P 500 earnings consensus increased by $50 (from $350 to $400) in 2026, with the earnings-per-share rising by approximately 14%
- The stock market has gotten cheaper on a valuation basis despite being up 9% year-to-date, as the PE on 2027 earnings compressed from 19.4x to 18.4x, meaning gains were driven by earnings growth not multiple expansion
- The speaker identifies three specific tailwinds supporting further earnings growth: AI and energy infrastructure legislation, onshoring trends, and residual government infrastructure spending
- The speaker believes there is room for earnings to revise even higher for the US market, suggesting the $400 consensus may not represent the ceiling
Topics
Transcript
[0:00] 2026 is tracking to be the fourth year of double-digit gains. It may surprise viewers, but when markets post three years of strong gains, which we've seen, 2023, 2024, 2025, the fourth year actually tends to be pretty solid. At the start of this year, the thought was that the earnings could be the driver of the markets. And um that's been the case because at the start of this year, 2027 S&P earnings consensus was $350 [0:32] and now it's currently $400. It's risen by $50. And the PE on 2027 earnings was at 19.4 at the start of the year. It's now at $18.4. So, the stock market, which might surprise people, has actually gotten cheaper now…
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