Strong corporate earnings growth outpaces stock price gains, pushing the S&P 500’s valuation multiple lower despite high investor enthusiasm.
The S&P 500’s forward price-to-earnings ratio has fallen below its 2026 starting level, even as stock prices remain elevated. Rapid earnings growth, rather than declining prices, has driven the compression in valuation multiples this year.
Corporate profits are on track for back-to-back quarters of over 20% earnings growth, with Q2 estimates at 23.3%. This marks the seventh consecutive quarter of double-digit growth, surpassing the five-year average of 16.4% and the 10-year average of 10.3%.
Despite only one 5% pullback in 2026, the denominator effect—where rising earnings outpace price gains—has kept valuations in check. Analysts note broad-based upward revisions across large, mid, and small caps.