Wall Street Usually Cuts Its Estimates. This Year, It Is Raising Them

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

Photo Credit: Simon Wilkes, Unsplash

Each year tends to follow a similar script on Wall Street. Analysts start the year optimistic about how much profit companies will earn, then spend the following quarters trimming those forecasts as actual results come in. The chart below, which tracks the S&P 500 earnings estimates for each calendar year over the prior two years, shows the pattern. For example, analysts would begin tracking 2026 earnings estimates at the start of 2025, two years in advance. For comparison purposes, the starting point for each year is set to 100. The gray dashed line shows the average path over the last 20 years. It slopes steadily downward and ends about 8% below where it began, highlighting how analysts often revise their estimates to align with results and corporate guidance. In contrast, the two darker lines, which graph the estimates for 2026 and 2027, are doing the opposite. Both have risen more than +10% since tracking began. Analysts are raising their estimates this cycle, not cutting, which stands out against two decades of history.

This year is different because actual earnings results have been strong. Analysts have consistently raised their estimates to keep pace with what companies are reporting, and profits have repeatedly come in ahead of expectations. The S&P 500 is on track for its seventh straight quarter of double-digit earnings growth. The technology sector is a major contributor, as heavy investment in artificial intelligence produces sales and earnings growth, but the strength reaches beyond it as well. More than 85% of S&P 500 companies have beaten their Q2 earnings estimates, above the five-year average of 78%. The strength is even more notable given the backdrop, which includes the Middle East conflict, volatile oil prices, and lingering inflation.

The stock market’s strong returns in recent years have been powered by real earnings growth, not just investor enthusiasm. The chart shows that analysts expect the strength to continue, with forecasts calling for another year of double-digit earnings growth in 2027. Much of the outlook rests on the AI buildout, where the largest tech companies are expected to continue spending heavily on infrastructure. Analysts also point to the wider economy, with expectations for steady economic growth and a productivity boost as more companies implement AI in their operations. However, none of this guarantees a smooth ride. When expectations run this far above normal, they set a high bar. Companies now have to deliver on forecasts that already assume a lot of good news. Volatility along the way is almost certain, but it's the price of admission for the returns stocks provide. For long-term investors, the point is simple: prices follow earnings, not headlines.

SP 500 Consensus Earnings Estimates for 2026 and 2027 Continue to Rise

SP 500 Consensus Earning Estimates
 

Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 22 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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