Raising the Earnings Bar
The S&P 500 has gained roughly 13% through July, the kind of run that makes investors wonder whether the market has moved too far, too fast. The fundamentals argue otherwise.
U.S. equities have delivered strong returns this year, with the S&P 500 up roughly 13% through July 31, 2026. These gains may raise concerns that the market has moved too far, too fast, but we believe corporate fundamentals tell a more encouraging story because earnings have grown even faster than the market. Are corporate earnings strong enough to continue supporting equities?
Source: FactSet and S&P Global Inc. as of 7/31/26. Data reflects growth in Next 12-Month consensus EPS estimates.
- Historically, Wall Street analysts begin the year optimistic on company earnings, and their estimates drift lower as the year progresses. By the end of July, when the majority of S&P 500 companies have reported second quarter earnings, calendar year estimates have typically fallen by approximately 3%. This year, the reverse has happened. Earnings estimates for 2026 have risen 15% since the start of the year, as shown in the chart above. Companies continue to clear a rising earnings bar, prompting analysts to raise their full-year estimates, with S&P 500 earnings now on pace to grow roughly 25%.1 According to our research, this would be one of the strongest years of non-recessionary earnings growth in several decades.2 We believe the AI buildout has been an important contributor, turning spending on data centers, chips, and power into revenue for the companies supplying them.
- We believe the strength in earnings places this year’s market performance in a favorable context. Earnings expectations have risen faster than stock prices, which has pushed the index’s forward price-to-earnings (P/E) multiple from 22.0x at the beginning of the year to 19.6x as of July 31, 2026, even as the market has advanced. Evaluating market performance without considering the growth in underlying earnings can provide an incomplete view of valuation (see also
The Platform Illusion).
- We believe this is the mark of a durable market advance, one powered by earnings rather than sentiment, just as we saw in
2025. While the S&P 500 trades around 19.6x forward earnings, above its 20-year historical average, net profit margins sit at a record 16.4%.3 The historical relationship between the two variables suggests that the P/E should be closer to 23.0x, all else equal (see also
Paying Up for Profitability).4 By these measures, we believe the market remains reasonably priced, supported by the rising profits that have historically carried stocks higher.
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Alger On the Money archive to see more charts from our weekly series.
1 FactSet and S&P Global Inc. Based on consensus estimates as of 7/31/26.
2 FactSet, S&P Global Inc. and Alger from 7/31/96 through 7/31/26.
3 FactSet and S&P Global Inc. as of 7/31/26.
4 FactSet and S&P Global Inc. S&P 500 forward price-to-earnings (P/E) multiples were regressed against net profit margins over the past 20 years to estimate the P/E level historically associated with a given level of profitability. Based on this analysis, a net profit margin of 16.4% would imply a forward P/E of approximately 23.5x. Regression analysis is a statistical technique used to estimate the relationship between two variables.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of August 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
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Price-to-earnings (P/E) is the ratio for valuing a company that measures its current share price relative to its earnings per share. Earnings per share (EPS) is the portion of a company's earnings or profit allocated to each share of common stock.
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