The Market’s Not Crazy—Invest Like It’s 2026

The Market’s Not Crazy—Invest Like It’s 2026

• Invest for what S&P 500 earnings growth looks like a year down the road.
• Wall Street expects CY2026 earnings of $302.53.
• That gets me to a year end target price of 7,000.

Markets don’t wait for clarity—they price it in early…

Many of the pundits on financial networks like CNBC and Bloomberg never cease to amaze me. Time and again, they rant and rave about how the stock market isn’t connected to the real world. They can’t understand why indexes—or the shares of individual companies—are going up while the world around them is steeped in uncertainty. These talking heads get so caught up in gloom-and-doom scenarios that they can’t see the forest for the trees.

You see, great investors aren’t focused on the moment. They’re trying to discern what the environment will look like a year down the road. Because they know that today’s uncertainty eventually gives way to tomorrow’s predictability. By staying disciplined and investing for that outcome, those with foresight can sell to others who will be chasing the same opportunities 12 months from now.

With the stock market making new highs, the pundits are increasingly questioning the rally. They don’t seem to grasp that the uptake of artificial intelligence by corporate America is driving efficiency and expanding margins. As a result, they’re missing the upside potential in the market over the next year.

Well, with 90% of S&P 500 Index companies having reported, 81% have delivered both positive earnings and revenue surprises, according to FactSet. Not only that, but the growth rate is on track to hit 11.8%—or 8.4% better than expectations heading into earnings season. And based on the forward-looking numbers I’m seeing, the S&P 500 could rally another 10% by year-end.

But don’t take my word for it, let’s look at what the data’s telling us…

Coming into the second quarter, analysts were conservative in their earnings expectations. At the start of July, they predicted S&P 500 companies would report a combined $62.82. That forecast came up short. With the bulk of earnings now in the rearview mirror, those same analysts anticipate second-quarter earnings of $66.39.

A big driver of the upside was the adoption of AI. Financial behemoths like JPMorgan, Goldman Sachs, and Bank of America said they’re increasingly deploying the technology across all platforms. They’re already seeing efficiency gains—Bank of America stated it saved $600 million in costs compared to the first quarter.

That spend is helping power demand and margins for major technology companies like Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Oracle. Several of these management teams said they can’t keep up with demand. As a result, their earnings power is being constrained as they race to build out capacity to meet customer needs.

The Technology and Financials sectors account for around 45% of S&P 500 earnings power combined. When we include Communication Services (Alphabet and Meta), the number jumps to about 57%. That’s important—because the companies with the greatest ability to drive the index’s earnings higher are seeing margins expand. In other words, the broader index’s expectations need to go up.

At the start of July, analysts predicted calendar year 2025 earnings of $264.15 and calendar year 2026 earnings of $300.24. Now, those numbers have risen to $267.48 and $302.53, respectively.

Coming into Q2, analysts expected earnings power for the coming four quarters of $270.23. But since the second quarter is nearly complete, we want to shift our investing horizon forward to Q3 and beyond. For the next four quarters, Wall Street anticipates S&P 500 companies will report $280.19 in earnings.

Now let’s apply a suitable price-to-earnings multiple to estimate fair value. Considering roughly 35% of the index’s weighting is technology, I believe we should use a blended multiple: 30x for growth and 19x for the rest. That gets me to a weighted fair-value multiple of roughly 23x earnings.

Remember, we want to invest today based on what earnings potential will look like 12 months from now. Multiplying our fair-value multiple of 23x by the forward 12-month earnings estimate of $270.23, we get a price target of 6,215 for the S&P 500—about 4% below yesterday’s close.

But let’s take it a step further. Considering its mid-August, there are just over four months left in the year. By the end of December, the S&P should be trading based on the CY2026 earnings estimate. Using the same fair-value math, I get to a target price of 6,960—or 8% higher from current levels.

Look, the market isn’t irrational—it’s early. The road ahead is always going to be filled with uncertainty. But while the pundits wait for clarity, disciplined investors are already positioning for what’s next. With earnings power accelerating and AI driving margin expansion, the S&P 500 isn’t topping out—it’s gearing up. Invest like it’s 2026.

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