Good morning, investors. The stock market banked another banner year in 2025, but for that momentum to continue the data suggest the margin of error is narrowing as expectations rise.
Today we unpack the outlook for the year ahead.
Upside in confidence
The S&P 500 is running out of earnings surprises.
At this stage, that’s the point.
After two years of repeatedly smashing expectations, US stocks are shifting to a new phase of the bull run. Profits are still growing, but investors now have to remain confident enough to keep paying for them.
That’s the implication stemming from an updated valuation analysis from DataTrek Research, based on Wall Street’s consensus earnings outlook through 2027.
The math points to a market that’s expensive by historical standards, yet still capable of climbing higher so long as the current economic backdrop holds.
At the start of 2025, analysts expected the S&P 500 to earn about $274 a share.
With most of the results now in, actual profits are tracking within about 1% of that estimate — an unusual feat considering the start-and-stop tariffs and geopolitical uncertainty of the last year.
Actual earnings trends show S&P 500 hovering just below $274 (Chart courtesy of Exhibit A)
That follow-through has emboldened forecasts for the next two years.
According to estimates tracked by FactSet, S&P 500 profits are expected to rise 14% in 2026 and 15% in 2027, marking an acceleration from last year’s already solid growth.
Forward profit margins continue to rise (Chart courtesy of Exhibit A)
Those estimates “bake in very healthy earnings growth” and leave little room for profits alone to surprise to the upside, DataTrek co-founders Nick Colas and Jessica Rabe wrote in a note.
Investors, meanwhile, have responded by paying higher prices.
The S&P 500 currently trades at about 22 times this year’s expected earnings and 19 times next year’s, both of which remain above its 10-year average.
Earnings trends keep rising across the market (Chart courtesy of Exhibit A)
That’s where the bull case becomes somewhat conditional.
Outside of recoveries from recessions, index-level earnings rarely grow beyond low double-digits.
Should those forecasts hold, earnings growth will support stocks, but that’s unlikely to be what propels asset prices higher.
“That leaves multiple expansion or, at the very least, stability as the cornerstone of any positive view on the S&P 500,” Colas and Rabe said.
To be clear, none of this is meant to turn anyone bearish on stocks.
The reality is that the S&P 500 with both rich valuations and lofty expectations. Further gains don’t require any moonshot assumptions beyond steady growth and sustained investor confidence.
After all, that’s the combination that has carried the market this far.
Whether it keeps working will define the next chapter of this bull run.
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Market snapshot
Elsewhere
📈 Silver and gold just keep climbing. Silver soared as much as 13% on Monday before paring gains, while gold breached $5,000 an ounce. Both metals are smashing even the most bullish expectations to start the year. (Yahoo Finance)
🇰🇷US tariffs on South Korea could rise from 15% to 25%. President Trump said he would hike tariffs on autos, pharmaceuticals and lumber from the country due to a delay in the country’s legislature approving a trade deal with the US. (CNBC)
🥶 Natural gas rallied nearly 30%. Freezing weather is hitting the US and turning some natural gas production centers offline, while electricity grids and transport networks also remain strained. (Bloomberg)
Rapid-fire
Wall Street remains fixated on a potential yen intervention (WSJ)
Microsoft debuted a next-generation custom AI chip to rival Nvidia (Yahoo Finance)
CoreWeave stock jumped after another $2 billion investment from Nvidia (Barron’s)
The memory chip shortage could last through 2027, a semiconductor CEO said (CNBC)
Supply-side economics have taken control from the Fed (Pomp Letter)
The Latin American stock market is booming to start 2026 (Opening Bell Daily)
Mining stocks like Newmont and Freeport have rallied alongside gold and silver (Barron’s)
On this day
🗓 January 27, 2010: Apple introduced the first iPad at a press event in San Francisco, marking a turning point in consumer technology products forever.
Last thing
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