Stocks have been hampered by geopolitical headlines. But even with this stark reality, as of now heading into the start of earnings season, analysts and companies have been more optimistic than normal with their earnings outlooks for the first quarter.
As a result, first-quarter estimated earnings for the S&P 500 are higher today compared to the start of the quarter. Also, the index is expected to report double digit earnings growth for the sixth straight quarter. As you read, keep in mind that analysts are typically conservative with their reports.
Analysts
Based on the above, it’s no surprise that analysts have increased their first-quarter earnings estimates on a dollar level basis by 0.4% since Dec. 31. Due to these upward revisions and the positive per-share earnings guidance by companies, the estimated year-over-year earnings growth rate for the first quarter is 13.2%.
When compared to the estimated earnings growth rate of 12.8% as of Dec. 31, that's about a 0.4% increase. If attained, it would be due to nine of 11 sectors projected to report year-over-year growth:
Furthermore, for the second through fourth quarters of 2026, analysts are now calling for earnings growth rates of 19.1%, 21.2%, and 19.3%, respectively. Should that occur, it would lead to a calendar year predicted earnings growth rate of 17.4%.
In terms of revenues, analysts have also increased their estimates during the quarter. As of today, the S&P 500 is expected to report revenue growth of 9.7% compared to the initial expectations for revenue growth of 8.2% on Dec. 31. Even more interesting, all 11 sectors are projected to report year-over-year growth in revenues:
In what may be the most important and interesting takeaway from the current expected preview is that with these analysts’ upgrades, the forward price-earnings ratio of the S&P 500 now sits at 19.8 times versus 22.0 times at the end of December.
This is the definition of earnings growing into their valuation expansion of last year.
Companies
If you don’t believe analysts, then let’s go straight to the companies they cover.
As of this writing, 110 S&P 500 companies have issued updated quarterly EPS guidance for Q1. Of them, 59 have issued positive EPS guidance:
That’s above the five-year average of 44 and the 10-year average of 40. In fact, this marks the highest number of S&P 500 companies issuing positive EPS guidance for a quarter since Q2 2021.
Taken together, it results in the percentage of companies issuing positive EPS guidance being 54%, which is above the five-year average of 42% and the 10-year average of 40%.
Drilling down a little further, what’s driving the higher number of S&P 500 companies issuing positive EPS guidance? For purposes of discussion, let's just focus on everybody's favorite whipping boy of the volatile Q1 2026 – the information technology sector.
As we always say, fundamentals matter and it's earnings, earnings, earnings.
Going into Q1 earnings season, the information technology sector has the highest number of companies issuing positive EPS guidance of all 11 sectors, at a robust 33. This number is well above the five-year average of 22.5 and well above the 10-year average of 19.6 for the sector.
In fact, this quarter ties the mark with the previous quarter for the second-highest number of companies in the information technology sector issuing positive EPS guidance for a quarter since FactSet began tracking this metric in 2006. The current record is 36, which occurred in Q3 2025.
So, from a fundamental standpoint the “tech is dead” narrative sure doesn't seem to be grounded in fundamentals.
Looking Forward
Understanding the groundwork being laid for Q1 2026 from a fundamental earnings standpoint, the reasonable question to ask is that after a volatile quarter for market prices, where do industry analysts see the S&P 500 price 12 months from now?
Importantly, when there's some price contraction combined with the explosive earnings growth we're about to see this year, this is what informs the 12-month forward picture. And we mentioned this in past earnings analysis (i.e., just wait until 2026), and now it’s nearly here.
Let’s start with the conclusion: industry analysts in aggregate predict the S&P 500 to rise 28.9% over the next 12 months.
This is calculated by aggregating the median target price estimates for all companies in the index.
Keep in mind, these are based on company-level estimates submitted by industry analysts.
As of March 26 (the latest data), the 12-month bottom-up price target for the S&P 500 was $8,349.36, which was 28.9% above the closing price on that day of $6,477.16:
What is most fascinating from a valuation standpoint is we have had an interesting combination of volatile price contraction due to geopolitical concerns combined with continued expected robust earnings growth. Thus, it’s interesting to note that there has been a divergence in the direction of the bottom-up target price and the closing price for the index, especially since Feb. 25. For example, while the bottom-up target price has increased by 0.9 %, the closing price has declined by 6.8% over the same.
Digging a little further at the sector level, eight of the 11 sectors have recorded an increase in their bottom-up target price while at the same time seeing a decrease in their closing price since Feb. 25. Maybe not surprisingly, the only sector that has reported an increase in both bottom-up price and closure prices since Feb. 25 is the energy sector:
To us, this is clearly indicative and supportive of our belief that the Q1 volatility seen in the market is not structural in nature and shouldn’t negatively affect the fundamentals of the stock market. Instead, it is likely a short-term, emotional, fear-driven reaction to geopolitics.
Areas of Confidence
What are analysts and companies most confident in to drive these expected stellar fundamentals? Let’s look at the most optimistic and pessimistic ratings on stocks in the S&P 500.
Overall, there are 12,733 ratings on stocks in the S&P 500. Of them, 58.2% are buy ratings, 36.5% are hold ratings, and just 5.3% are sell ratings.
For perspective, the percentage of buy ratings currently is above its five-year average of 55.6% and the percentage of sell ratings is also below its five-year average of 5.6%. More interesting is that if 58.2% is the final percentage of buy ratings for the month, it will mark the highest percentage of monthly buy ratings going back to at least 2010. Prior to the past few months, the previous record month-end percentage of buy ratings was 57.5%, which took place in February 2022.
This is illustrative of the unique environment we are currently in. That is, there's a combination of fundamental earnings growth and Q1 price contraction. It’s illustrated in the fact that buy ratings have fallen to 55.8% at the end of July 2025, while having increased to 58.2% today. Importantly, this confidence has been broad in nature as eight of the 11 sectors have seen an increase in their percentage of buy ratings during this period.
These are clear indications of the combination of great value currently due to Q1 volatility price contraction and continued record-breaking earnings and growth projections expected throughout the remainder of 2026. It’s a great setup for the second half of the year.
Second Half
It's been a tough market so far this year. But the good news is market volatility historically creates great buying opportunities. The key is simple, especially this year. We don't want to miss the midterm election year-end rally that almost inevitably is coming.
But don't take our word for it. It turns out that there are significant repeatable patterns in midterm years. We know they’re the worst of the four-year presidential cycle. But there is good news too.
For many investors with market uncertainty having been off the charts, it's very easy to throw in the towel and sell everything. But we've already seen the projected earnings, revenue, fundamental, and value data instruct us otherwise.
History ALSO suggests throwing in the towel would be a massive mistake. Since 1980, the S&P 500 averaged 10% annual gains despite suffering through average annual peak-to-trough drawdowns of 14%.
If you've been paying attention, the current market drawdown falls right in line with historical tendencies.
We have been beating the drum since last summer (and we’ll say it again) that midterm election years don't have a great track record. They're by far the weakest in the four-year presidential cycle, averaging just a 5.8% total return since 1926:
This year it’s even more pronounced because of geopolitical concerns, and history shows midterm years are more volatile than other years, averaging a punishing intra-year 16% drawdown.
But that's only part of the story. Today, combined with the fundamental and earnings data above, the intent is to now tell the second half of the story that we’ve yet to divulge.
Midterm year weakness and volatility are historically extremely front-end loaded. The S&P 500 tends to be very choppy for the first seven to nine months of midterm years, averaging a modest 1% decline on average during the first nine months of historical midterm years.
Here's what many emotional investors miss. The fourth quarter (oftentimes beginning in mid-Q3), typically sees huge gains once election uncertainty subsides. This year especially, there is a possibility of this certainty coming into focus earlier than in years past due to the extra pressure that took place due to the war with Iran.
Still, from historical standpoint, since 1926 the S&P 500 averages a 7% ramp in the fourth quarter of midterm years with an 88% positivity rate:
Additionally, with the increased market volatility in Q1, these averages also indicate the possibility of a slightly positive Q3 potential as the market begins to stabilize from war and election uncertainty.
While that may feel somewhat warm and fuzzy, better yet, historically markets rebound off midterm lows quickly, but more importantly last well into the following year. Since 1950, the S&P 500 averages a 36% one-year forward return off midterm year lows.
Interestingly, this is in line with the above 12-month forward analyst expectations, which are founded in earnings and fundamental strength. Combining historical precedent and fundamental strength begins to provide significant positive clarity as we begin to see the forest through the trees.
For this to occur, it’s vital to ensure we're in the right place as we come out of periods of uncertainty. It’s a combination of following the data and being appropriately allocated in areas best positioned to weather the uncertain storms, which as we discussed last week, are specifically in this situation our favorite HALO stocks.
This type of positioning has and should continue to mitigate our downside risk comparative to the market, and in some cases, even produced positive year-to-date results. Being in the right place allows the cognizant investor to be ahead of the benchmark indices coming out of the uncertain volatility experience this year. This matters due to the law of larger versus smaller numbers, which is part of the math of recovery analysis illustrating the importance of downside protection.
This approach creates scenarios where you have less ground to make up (per se), providing a foundation that can lead to even stronger forward-looking performance expectations than traditional historical expectations. Within the industry this is called the math of recovery.
In layman's terms, all this means is the less loss you have to recover, the less gain you need to break even or get ahead:
This fundamental belief that we abide by is rooted in everything we do and goes all the way back to the fundamental principles espoused by Warren Buffett's mentor himself, Benjamin Graham:
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