The Market’s Silent Tailwind Is Getting Louder

• S&P 500 Index members are forecast to buy back $1.4 trillion of shares in 2026.

• That number could swell to $1.5 trillion in 2027.

• That should drive down the earnings multiple, making stocks cheap.

The real drivers of this rally are only just beginning to reveal themselves …

This year is almost two-thirds of the way over, and the S&P 500 Index has rallied a solid 13%. Yet, clues from recently completed second-quarter earnings point to more fuel in the tank. Two important read‑throughs, Amazon and Alphabet, helped drive 50%+ quarterly earnings growth on the back of insatiable customer technology demand. When the companies spending on the picks and shovels of the AI build‑out start talking up the outlook, it tends to set the tone for the rest of the market.

That’s especially relevant because technology has increasingly become the domestic economic engine. Tech represents roughly 38% of the entire S&P 500. If the sector continues to deliver results that rhyme with what Amazon and Alphabet signaled, index‑level earnings estimates will drift higher. With this much concentration, even small upward revisions can move the whole benchmark.

And now a fresh catalyst is lining up…

With the bulk of earnings reports behind them, companies can restart buybacks, a quiet but powerful tailwind. Reducing share count lifts earnings power and nudges the fair‑value price-to-earnings (“P/E”) multiple lower at the same time. Layer that on top of tech‑sector strength, and the setup supports a steady, durable rally as the year plays out.

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

Quarterly earnings typically kick off with financial giants like JPMorgan Chase (JPM), BlackRock (BLK), Citigroup (C), and Wells Fargo (WFC). Then, about two weeks later, the large‑cap tech cohort—Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), Meta (META), and Microsoft (MSFT)—steps up to the plate.

Ahead of those reports, most companies pause buybacks for roughly two weeks. But now that most earnings have been released, those companies are free to resume repurchase plans. And here’s the twist: tech and financial firms tend to be the most aggressive buyers of their own stock.

So far this year, S&P 500 companies have announced plans to buy back $990 billion worth of shares. But according to brokerage firm Goldman Sachs, the number could hit a record $1.4 trillion by the time the year is over. And if we use a Goldman-like framework, the potential for 2027 is likely to swell…

The chart above shows annual stock buyback totals. Solid bars reflect confirmed amounts, while shaded bars represent estimates for 2026 and 2027. The trajectory has been steadily higher, with the previous records set in 2024 and 2025. If we apply the 8.4% compound annual growth rate since 2010, S&P 500 member companies could end up retiring another $1.5 trillion in shares during 2027.

That matters for earnings. If the number of outstanding shares shrinks while business holds steady, earnings per share (“EPS”) naturally improve, because the math changes with fewer shares. If business improves, earnings power compounds even faster.

For example, say a growth‑oriented tech stock trades at a fair‑value P/E of 32x. With 100 million shares and $1 billion in forecast earnings, EPS is $10, implying a fair value of $320. If the company retires 10% of its shares, leaving 90 million, and earnings stay flat, EPS rises to $11.11. At the same multiple, fair value jumps to $355.56. The buyback lowers the effective multiple and creates more room for price upside.

Now apply that logic to an index…

The S&P 500’s earnings power resembles that of a single company—an aggregate of its constituents. Over the next 12 months, those members are expected to earn $375.53, according to FactSet.

At a forward 12‑month P/E of 21x, that implies a fair value near 7,886. But with tech companies making up roughly 38% of the index, a 23.3x multiple may be more appropriate, pushing fair value closer to 8,731, or about 13% above current levels. Calendar‑year 2027 estimates of $405.17 suggest a fair value of 9,420 by the first quarter of next year.

Now layer in expected buybacks. Wall Street anticipates a roughly 3% reduction in outstanding shares by year‑end, similar to 2025. That boosts earnings power through share compression, lowers the effective multiple, and opens the door for investors to push the index even higher. That should underpin a steady, long-term rally in the S&P 500.

Five Stories Moving the Market:

The world’s largest financial groups are working with Nvidia to assemble a $500 billion funding package for AI infrastructure development; a consortium of groups including Apollo Global, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs and KKR is entering a partnership with Nvidia to invest in the AI build-out – FT. (Why you should care – this foray could help to bring down borrowing costs as Nvidia may better understand the lifetime and value of data center infrastructure equipment)

Morgan Stanley said it will seek to facilitate about $1.5 trillion of investment activity tied to the U.S.’s push for innovation and the infrastructure needed to bolster it; as part of the new initiative, the bank will help on capital raising, financing, advisory and other related activity in the next decade – Bloomberg. (Why you should care – Morgan Stanley joins JPMorgan Chase, who announced a similar initiative last year)

Federal Reserve Chairman Kevin Warsh envisions a central bank whose interest-rate decisions don’t hinge on the latest monthly data; two inflation reports over the next month are set to shape whether his colleagues push to raise rates in September or extend their pause – WSJ. (Why you should care – Warsh is trying to take a more proactive rather than reactivation approach to monetary policy)

Microsoft is planning to unveil its new Maia 300 AI chip this fall, potentially as soon ​as next month, according to The Information; the company is scaling up ​its in-house chip efforts as it seeks to reduce its ​reliance on outside processors – Reuters. (Why you should care – a reduction in data center construction costs would help to rebuild the company’s free cash flow)

Federal Reserve Bank of Cleveland President Beth Hammack said it’s possible a number of interest rate hikes may be needed to bring inflation down to the central bank’s 2% target, but she does not want to prejudge what the end point will be – Bloomberg. (Why you should care – Hammack is possibly the most hawkish of all the Fed members)

Economic Calendar:

Japanese Markets are Closed

Earnings – ARMK, CAH, CAVA, CRWV, FNV, HRB, IHG, LITE, QNT, SFD, SMCI

Reserve Bank of Australia Monetary Policy Announcement (12:40 a.m.)

U.S. – NFIB Small Business Optimism for July (6 a.m.)

U.S. – ADP Employment Change Weekly (8:15 a.m.)

Treasury Auctions $95 Billion in 6-Week Bills (11:30 a.m.)

Treasury Auctions $58 Billion in 3-Year Notes (1 p.m.)

U.S. - American Petroleum Institute Crude Oil Inventory Data (4:30 p.m.)