S&P 500 earnings are expected to rise 35% in 2026, the fastest pace since 2021, according to analysts tracked by LSEG IBES. Reuters reports that the same group of analysts expects that growth rate to drop to 15% in 2027.
The deceleration follows a period of exceptional corporate performance. The U.S. Department of Commerce reported that total U.S. corporate profits reached a $4.7 trillion annual rate in the second quarter, a 20.8% increase from the year prior. Within that figure, manufacturing profits climbed to $1.05 trillion, up from $812 billion in the previous quarter. The source of this surge includes factories supplying chips, servers, and power gear for data centers.
| Metric | Value | Period/Change |
|---|---|---|
| S&P 500 Earnings Growth | 35% | Expected for 2026 |
| S&P 500 Earnings Growth | 15% | Expected for 2027 |
| U.S. Corporate Profits | $4.7 trillion | Q2 annual rate |
| Manufacturing Profits | $1.05 trillion | Q2 (up from $812B) |
Walter Todd, chief investment officer at Greenwood Capital, told Reuters that the strong current results create difficult comparisons for the following year. Barclays strategists note that the projected 15% growth for 2027 would still exceed the 10% median annual growth rate recorded over the past 35 years.
A significant driver of recent earnings has been capital expenditure by major technology firms. Five hyperscalers are expected to spend just over $800 billion this year and $1.1 trillion in 2027. This represents a growth rate decline from nearly 100% to 37%. For chipmakers and cooling-equipment suppliers, these smaller budget increases translate to reduced revenue gains.
Monetary policy adds pressure to the outlook. The Federal Reserve raised rates by 25 basis points in September, and Chair Kevin Warsh indicated a continued focus on fighting inflation. Higher borrowing costs reduce corporate willingness to fund artificial intelligence buildouts with debt and may cool household spending, which grew at a 3.8% rate in the second quarter.
Valuations have already adjusted to reflect these shifts. The S&P 500’s forward price-to-earnings ratio has fallen to 19 from 22 in January. AI infrastructure stocks saw their forward earnings multiple drop from 32 in April to 22. Despite these valuation cuts, the SPDR S&P 500 ETF Trust is up 12.86% this year as earnings growth has outpaced the decline in multiples.
Mike Wilson, chief U.S. equity strategist at Morgan Stanley, described the current market as a "classic mid cycle transition." More than 40% of Russell 3000 stocks have fallen at least 20% since June, even as the index remains near record highs. This divergence means headline returns for investors are increasingly driven by a shrinking group of companies.
The next catalyst is third-quarter earnings reports, which begin in the coming weeks. The critical data point will be 2027 capital spending guidance from hyperscalers. If budgets are confirmed near $1.1 trillion, the 15% earnings forecast appears sustainable and the valuation correction may be complete. If any major company cuts its budget, chip and equipment suppliers would likely face immediate downside pressure. Michael Arone of State Street Investment Management stated that while earnings growth will slow, the degree of that slowdown remains an open question.