'An ideal setting for earnings': Wall Street anticipates that rising profits will drive the markets in 2026

Wall Street's Optimism: Earnings Growth Set to Drive Markets Higher

Amid recent concerns over Greenland and a shift away from US assets, Wall Street experts are encouraging investors to focus on the potential for earnings growth to lift the stock market this year.

Richard Saperstein, Chief Investment Officer at Treasury Partners, shared with Yahoo Finance that the current environment is highly favorable for corporate earnings, citing moderating inflation and ongoing job creation as key factors.

As earnings season progresses, analysts predict that the S&P 500 will achieve approximately 8.3% profit growth for the fourth quarter compared to the previous year, according to Bloomberg. FactSet analysts are even more optimistic, projecting growth above 14%, which would mark the fifth straight quarter of double-digit earnings increases.

FactSet data shows that out of the 33 S&P 500 companies reporting fourth-quarter results by January 16, nearly 80% surpassed consensus earnings-per-share forecasts.

Strategists at BNY Wealth are also forecasting around 14% earnings growth for the year, attributing part of this to tax breaks and increased capital spending resulting from President Trump’s "Big Beautiful Bill," which effectively reduced the corporate tax rate by about 3%.

BNY Wealth’s team expects that earnings gains will come from a broader range of sectors beyond just technology and the so-called "Magnificent Seven."

Alicia Levine, BNY Wealth’s head of investment strategy and equities, noted during a recent 2026 outlook discussion that the market is becoming less concentrated, with more sectors contributing to earnings growth. She highlighted the strong performance in Materials, Industrials, and Energy sectors as evidence of this broader participation.

• Materials
• Industrials
• Energy

Saperstein added that his firm continues to favor large-cap technology stocks, emphasizing that advancements in artificial intelligence remain a major force behind economic growth.

He also mentioned steering clear of market segments that could be impacted by potential policy changes from President Trump, such as proposed caps on credit card interest rates or limitations on institutional real estate ownership.

Federal Reserve Outlook and Bond Opportunities

Wall Street is also anticipating a more accommodative stance from the Federal Reserve, with most strategists expecting two interest rate cuts this year. The central bank is likely to adopt a dovish approach once a new chair is appointed to succeed Jerome Powell after his term concludes in May.

This shift could benefit medium-term bonds. Alex Morris, CEO and Chief Investment Officer at F/m Investments, told Yahoo Finance that if rates decline, five- to ten-year US Treasury bonds could offer attractive returns.

Geopolitical Risks and Market Fundamentals

Short-term volatility is still expected, especially in response to geopolitical developments. Saperstein described geopolitics as the "wild card" for this year.

However, the market’s quick recovery after President Trump’s announcement of a potential Greenland deal and the withdrawal of tariff threats against Europe suggests that such events may not have lasting negative effects.

UBS strategists emphasized that while headlines may cause temporary swings, it is the underlying fundamentals that ultimately shape market performance. They also pointed out that long-term trends like artificial intelligence, electrification, and demographic shifts will continue to support stock prices.

UBS projects that S&P 500 earnings per share will rise by about 10% year over year, potentially pushing the index to 7,700 by the end of 2026. Meanwhile, Oppenheimer has set an even more optimistic target, expecting the index to reach 8,100 by year-end.

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