Jurrien Timmer, Director of Global Macro at Fidelity, projects that third-quarter earnings growth could reach 30% to 35% if historical patterns of post-quarter reporting bounces repeat. Currently, trailing earnings have risen by 28%, while forward earnings are anticipated to grow by 20%. Despite these figures, the market's trailing price-to-earnings multiple has declined by 10% year-over-year.
Data cited by Timmer indicates that earnings growth for the first and second quarters of 2026 is estimated at 29% and 34%, respectively. These projections significantly exceed the 11% to 15% growth range observed between the fourth quarter of 2024 and the third quarter of 2025. The S&P 500 index has recently reached a record high, surpassing 7,800 points.
Timmer notes that investors historically avoid paying premium multiples during periods of peak earnings growth, citing patterns from 2018 and 2021. In 2018, 23% growth preceded a 24% drop in P/E, while 50% growth in 2021 was followed by a 33% decline. These historical trends suggest that current market behavior may be consistent with past cycles of earnings expansion.
Kevin Gordon, head of macro research at Schwab, highlighted potential risks to these growth forecasts, specifically noting that a shortfall in AI capital expenditure by a mega-cap company could disrupt earnings. Since early August, the average S&P 500 stock has experienced a 14% decline from its peak. Given the concentration of AI-related stocks in the index, upcoming reports may test current market valuations.
