The Quiet Setup for a Steady 2026 Rally

• S&P 500 Index members are forecast to buy back $1.2 trillion of shares in 2025.

• That number could swell to $1.3 trillion in 2026.

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

The quiet forces beneath this rally are only now coming into view…

The S&P 500 is opening the year on solid footing, up nearly 2% in January as early earnings clues point to more fuel in the tank. Two important read‑throughs—Taiwan Semiconductor and Seagate Technology—just raised guidance on the back of stronger AI demand. When the companies supplying 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 economic engine. Tech represents roughly one‑third of the entire S&P 500. If the sector delivers results that rhyme with what TSMC and Seagate just signaled, index‑level earnings estimates almost have to drift higher. With this much concentration, even small upward revisions can move the whole benchmark.

And now a fresh catalyst is lining up…

Over the next two weeks, most S&P 500 companies will release fourth‑quarter results. This is when management teams reset expectations, analysts recalibrate their models, and investors get their first clean read on how 2026 earnings power is shaping up.

And once earnings reports are behind them, companies can also 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 unfolds.

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 a day or two after earnings drop, they’re 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.

By late last year, S&P 500 companies had announced plans to buy back a record $1.2 trillion worth of shares. But if we apply a Goldman‑style model to estimate the potential for 2026 and 2027, those numbers are likely to swell…

The chart above shows annual stock buyback totals. Solid bars reflect confirmed amounts, while shaded bars represent estimates for 2025 (pending 4Q totals), 2026, and 2027. The trajectory has been steadily higher, with the previous record of $982 billion set in 2024. That figure was eclipsed last year and should rise even more going forward. Using a Goldman‑like framework that factors in earnings growth, free cash flow, and cost of capital, companies could spend nearly $1.3 trillion and $1.4 trillion, respectively, retiring shares in 2026 and 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 $355.52. 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 $311.25, according to FactSet.

At a forward 12‑month P/E of 22x, that implies a fair value near 6,850. But with tech companies making up roughly 35% of the index, a 23x multiple may be more appropriate, pushing fair value closer to 7,160, or about 3% above current levels. Calendar‑year 2027 estimates of $358.45 suggest a fair value of 8,240 by year‑end 2026.

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.

It’s early in earnings season, but the signals are clear. Based on the reports from Taiwan Semiconductor and Seagate Technology, companies are increasingly using AI to boost profits. If the rest of the tech titans confirm the trend, earnings estimates may already be too low. That would pull the current P/E multiple down, make stocks look cheaper, and, when combined with expanded earnings potential from buybacks, give the S&P 500 even more upside than investors realize.

Five Stories Moving the Market:

Texas Instruments gave a surprisingly robust forecast for the first quarter, indicating that demand for industrial equipment and vehicles is recovering from a rough patch - Bloomberg. (Why you should care – customers have finally worked off excess inventory, making for a better pricing environment)

Seagate Technology forecast third-quarter revenue and profit above Wall Street expectations, benefiting from strong demand for its data storage devices as enterprises scale up their use of artificial intelligence – Reuters. (Why you should care – picks and shovel plays continue to benefit from solid demand for artificial intelligence products)

Federal Reserve officials this week are expected to stop cutting interest rates for the first time since September, holding steady after three consecutive reductions; the harder question is what it would take to start again – WSJ. (Why you should care – the Federal Reserve is unlikely to ease further before a new chair takes over in June)

India has more work to do in order to satisfy U.S. concerns about its purchases of Russian oil and secure tariff relief, according to U.S. Trade Representative Jameson Greer – Bloomberg. (Why you should care – the comments signal the two sides are having difficulty agreeing to terms on a trade deal)

U.S. President Donald Trump said he will soon announce his pick to serve as head of the Federal Reserve, and predicted interest rates would decline after the new chair takes over – Reuters. (Why you should care – the leading candidate, BlackRock Fixed Income Chief Rick Rieder, is said to favor easier monetary policy)

Pre-Market Levels:

S&P Futures +0.22%, Nasdaq Futures +0.77%, Dow Jones Futures -0.04%, Russell 2000 Futures +0.35%

Europe:

EuroStoxx 50 -0.16%, UK FTSE -0.46%, German DAX -0.34%, French CAC -1.11%, Italian MIB -0.95%, Spanish IBEX -1.46%

Asia:

Japan's Nikkei +0.05%, Japan's TOPIX -0.86%, China's Shanghai Composite +0.27%, Hong Kong Hang Seng +2.58%, South Korea's KOSPI +1.69%, Taiwan's TSE +1.65%

Currencies:

Dollar -0.03%, Euro -0.49%, Japanese Yen -0.11%, British Pound -0.45%, Canadian Dollar +0.05%, Swedish Krona -0.71%, Swiss Franc -0.73%

Risk:

VIX +1.18%, Bitcoin +1.97%, Ethereum +3.47%

Growth:

WTI Crude +0.59%, Brent Crude +0.42%, Nat Gas -2.77%, Copper +0.94%

Safety:

Gold +3.49%, Silver +6.07%

Sovereign Bonds:

U.S. Treasury 10-yr yield +2.0bps at 4.243%

U.S. Treasury 2-yr yield unchanged at 3.569%

German 10-yr yield -1.9bps at 2.852%

French 10-yr yield -1.8bps at 3.418%

U.K. 10-yr yield unchanged at 4.527%

Japanese 10-yr yield -4.3bps at 2.241%

Economic Calendar:

Earnings: ADP, ASML, DHR, GD, GLW, IBM, LRCX, META, MSFT, SBUX, T, TSLA, WM

Japan – Monetary Policy Meeting Minutes

Australia – CPI for Q4

German – GfK Consumer Climate for February (2 a.m.)

U.S. – MBA 30‑Year Mortgage Rate (7 a.m.)

U.S. - MBA Mortgage Applications (7 a.m.)

U.S. – President Trump Speaks (8:30 a.m.)

Bank of Canada Monetary Policy Announcement (9:45 a.m.)

BOC’s Macklem (Governor) Speaks (10:30 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

Treasury Auctions $30 Billion in 2-Year Floating Rate Notes (11:30 a.m.)

Federal Reserve Monetary Policy Announcement (2 p.m.)

Fed’s Powell (Chairman) Speaks (2:30 p.m.)