Investing in the World After This One

• Invest for what S&P 500 earnings growth looks like a year down the road.

• Wall Street expects CY2027 earnings of $373.

• That gets me to a year-end target of 7,400.

The hardest part of investing isn’t spotting the risk in front of you; it’s believing in the world that comes after it…

Great investors aren’t focused on the moment. They’re discerning what the environment will look like a year down the road. They know that today’s uncertainty eventually gives way to tomorrow’s predictability. By staying disciplined and investing for that outcome, those with foresight can sell to others who will be chasing the same opportunities 12 months from now.

What makes the current backdrop so challenging, and so important, is that it demands exactly that kind of forward vision. The conflict in Iran has injected a fresh layer of anxiety into markets, but history gives us a useful compass. Past Middle East flare‑ups have tended to be sharp, intense, and short‑lived, with the global economy finding its footing sooner than the headlines would suggest. The real skill today is looking past the present moment and picturing the world on the other side of the ceasefire. Because when these conflicts resolve, they often leave behind an environment that rewards those who stayed focused on the horizon rather than the noise at their feet…

With first‑quarter earnings results right around the corner, analysts have raised their expectations for profits and outlooks. According to financial data provider FactSet, S&P 500 Index calendar‑year 2026 earnings estimates have jumped from $309 to $320 over the last six months. At the same time, Wall Street anticipates earnings could hit almost $373 in 2027. Based on my math, those estimates imply the S&P 500 could rally another 10% by year‑end.

But don’t take my word for it, let’s look at what the data’s telling us…

Coming into the fourth quarter, analysts were conservative in their earnings expectations. At the start of October, Wall Street predicted S&P 500 member companies would report combined growth of 7.4%. That forecast came up short. With earnings now in the rearview mirror, growth came in at 8.2%...

A big driver of the upside was the adoption of AI. Financial behemoths like JPMorgan, Goldman Sachs, and Bank of America said they’re increasingly deploying the technology across all platforms. JPMorgan CEO Jamie Dimon framed AI as a structural, enterprise‑wide shift already delivering measurable cost savings and reducing hiring needs. Goldman and Bank of America said AI is a catalyst for reorganizing their firms and boosting operating efficiencies.

That spend is helping power demand and margins for the goods and services offered by major technology companies. Microsoft, Nvidia, and Amazon’s management teams said they can’t keep up with demand. As a result, their earnings power is being constrained as they race to build capacity to meet customer needs. The recent launch of Agentic AI at the start of this year could compound that problem.

The Technology and Financials sectors account for around 47% of S&P 500 earnings power combined. When we include Communication Services (Alphabet and Meta), the number jumps to about 60%. That’s important—because the companies with the greatest ability to drive the index’s earnings higher are expected to experience margin expansion. Wall Street now expects the tech sector to report earnings growth of 33.5% compared to 25.8% at the end of 2025. But if those numbers prove conservative once more, it means the broader index’s expectations may need to go up.

As I said at the top, at the end of last year, analysts predicted calendar‑year 2026 earnings of $311 and calendar‑year 2027 earnings of $358. Now, those numbers have risen to $320 and $373, respectively…

The next step is to apply a suitable price‑to‑earnings multiple to estimate fair value. Let’s use a multiple of roughly 20x earnings, given that’s the five‑year average.

Remember, we want to invest today based on what earnings potential will look like 12 months from now. So, by the end of May, when first‑quarter results are complete, the market should be priced based on the forward 12‑month numbers. Multiplying our fair‑value multiple of 20x by the forward 12‑month earnings estimate of $338, we get a price target of 6,747 for the S&P 500, in line with current levels.

But let’s take it a step further. Since it's only early April, the entire year still lies before us. By the end of 2026, the S&P should be trading based on the CY2027 earnings estimate. Using the same fair‑value math, I get to a target price of 7,455, or 10% higher than current levels.

Look, the market isn’t irrational, it’s early. The road ahead is always going to be filled with uncertainty. But while the pundits wait for clarity, disciplined investors are already positioning for what’s next. With earnings power accelerating and AI driving margin expansion, the S&P 500 isn’t topping out—it’s gearing up. Invest in the road ahead.

Five Stories Moving the Market:

Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell summoned Wall Street leaders to an urgent meeting on concerns that the latest artificial intelligence model from Anthropic PBC will usher in an era of greater cyber risk – Bloomberg. (Why you should care – the meeting implies financial companies are likely to spend more on cybersecurity software that employs the latest AI technology)

South Korea's central bank kept its policy interest rate steady, maintaining a cautious ​stance as the conflict in Iran threatens to heat up ‌inflation and weigh on growth in an economy heavily dependent on Middle Eastern energy – Reuters. (Why you should care – the potential for a broader ceasefire negotiation with Iran should allow the Bank of Korea to look through any recent inflation growth)

Israel will begin direct negotiations with Lebanon after Israeli Prime Minister Benjamin Netanyahu instructed his cabinet to start talks following repeated requests from Beirut; the announcement came after European nations and Pakistan, the host of talks this weekend between Washington and Tehran, said the Israel’s attacks risked undermining efforts to forge lasting peace – WSJ. (Why you should care – the proposal for discussions with Lebanon removes an impediment for Iran negotiations commencing this weekend)

U.K. Prime Minister Keir Starmer promised to strengthen the country's economy and military to cope with a more "volatile and dangerous" world, saying the Iran war must become a turning point for Britain after two decades of crises – Reuters. (Why you should care – the comments point to more spending on military equipment and advanced technology)

NATO Secretary-General Mark Rutte is pushing U.S. allies in Europe to make concrete commitments in the coming days for a mission to secure the Strait of Hormuz following a meeting with President Trump; Rutte said that European allies ⁠“are doing everything the United States is asking,” even as he acknowledged some had been “a bit slow” to offer support when the U.S. launched its military operation in Iran – WSJ. (Why you should care – securing the area would support international law that states the free transit of traffic must be allowed through the Strait of Hormuz)

Economic Calendar:

Earnings – LOT, UNTY

Bank of Korea Monetary Policy Announcement

China – CPI, PPI for March

Norway – CPI for March (2 a.m.)

U.S. – CPI for March (8:30 a.m.)

U.S. – Real Earnings for March (8:30 a.m.)

Canada – Employment Change for March (8:30 a.m.)

Canada – Unemployment Rate for March (8:30 a.m.)

U.S. – Factory Orders for February (10 a.m.)

U.S. – Michigan Consumer Sentiment for April (10 a.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. - CFTC’s Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)