S&P 500 Hits 5th Quarter of Double-Digit Growth
The S&P 500 has recorded its fifth consecutive quarter of double-digit earnings growth, with the index approaching the 7,000 mark. The gains were led by the information technology and industrial sectors. However, global equities have retreated from record highs amid concerns over stretched valuations in the tech sector, prompting some market rotation into defensive stocks.
Analysts project the S&P 500's earnings will grow by 15% for the full year 2026, significantly above the 10-year average annual growth rate of 8.6%. This would mark the third consecutive year of double-digit growth. The forecast for the year-end median price target for the index sits around 7,650, according to a survey of 20 analysts. The forward 12-month price-to-earnings ratio for the S&P 500 is currently 21.5, notably higher than the 5-year average of 20.0 and the 10-year average of 18.8. At 22 times forward earnings according to some measures, this valuation matches the peak seen in 2021 and is approaching the record of 24 times set in 2000. In 2025, only three sectors managed to outperform the broader S&P 500. The technology sector led with a total return of 24.6%, followed by the communications sector at 23% and the industrial sector at 19.5%. Looking ahead, the industrial sector is projected to see earnings jump by 15.6% in 2026, making it the third-fastest-growing sector. This outlook is supported by resilient business investments and a rebound in manufacturing. The recent shift by investors into defensive holdings such as consumer staples is often interpreted as a sign of increasing caution. This type of rotation into companies that provide essential goods and services can signal that investors are seeking to protect their portfolios from potential market weakness. This defensive turn is notable, with the consumer staples sector outperforming the broader S&P 500 by approximately 10% over a recent one-month period. Such a significant outperformance is a rare event outside of a clear market downturn. Further evidence of a broadening market beyond mega-cap tech stocks can be seen in the performance of the equal-weighted S&P 500 index. In early 2026, the equal-weighted version began to outperform the traditional market-cap-weighted index, indicating that more stocks are participating in the market's advance.
