Latest reports from companies included in the S&P 500 Index (SPX) are keeping market sentiment up, promising an optimistic outlook for 2026. This year is predicted to be the third one with double-digit earnings growth. Let’s break down a few key points worth your attention:
Increasing EPS. FactSet and Goldman Sachs analysts forecast that earnings per share will rise by about 12%–15% in 2026, with EPS between $305 and $314.
Target levels. The majority of investment banks, like JPMorgan and Morgan Stanley, set the year-end goal for the S&P 500 at 7,500–7,600. The most optimistic projections target 8,100. The record net profit margin could reach 13.9%---the highest figure since 2008.
Main tailwinds. The IT and communications sectors remain key drivers, providing around 36.8% of the index’s total profit. Firms from the tech segment, including the Magnificent Seven, are expected to surge by 22.7% in 2026.
Potential risks. The price/earnings (P/E) ratio is currently around 22—above its historical average (18.8). This is a clear signal that the market is overvalued and highly susceptible to any negative news, such as unexpected rate decisions or new import tariffs.
Uneven sector contribution. While tech and financial segments are undisputed leaders, the energy sector’s earnings are projected to decline this year.
Keep in mind that growth expectations are high, with the bar set at 15%. This increases the risk of volatility: if companies' actual reports turn out to be even slightly worse than these ambitious forecasts, the market may enter a correction.
The ultimate recommendation is to buy SPX. Profits should be taken at 7,150. Stop Loss could be set at 6,700.
Always size the position so that your potential loss (protected by a Stop Loss) is no more than 1% of your account balance. If you can't open a position that meets such a risk criterion, it's safer to skip this trade and wait for a better, lower-risk opportunity.
This content is for informational purposes only and is not intended to be investing advice.
