What earnings growth means for Canadian investors right now
The S&P 500 is up approximately 13.00% in 2026 through early October. That number attracts a lot of questions, blog posts and headlines.
What deserves more attention is the fact that the market is both higher AND cheaper now than it was at the start of the year.
That is not a contradiction, typo or wishful thinking. It is the result of earnings growth which has outpaced price appreciation by a significant margin so far this year.
For investors trying to make sense of where markets stand heading into the end of 2026 and 2027, this is important to understand.
What does it mean for a stock market to get cheaper while going up?
Stock market valuation is not just about the index number or price, it is about the relationship between price and earnings.
The most widely used measure of that relationship is the price-to-earnings ratio — the P/E ratio. A high P/E means investors are paying a lot for each dollar of corporate earnings. A low P/E means they are paying less. When earnings grow faster than prices, the P/E ratio falls even if the index itself rises.
That is exactly what has happened in 2026.
The forward price-to-earnings ratio for the S&P 500 — which uses projected earnings over the next 12 months — stood at approximately 22x at the start of the year. As of early October, it sits at 19.0x. The index has gained roughly 13%. The valuation multiple has dropped by roughly three points.
Robust earnings have allowed the S&P 500 to trade near an all-time high in price but to contract in valuation. Earnings growth, not speculation, is driving the market.
What are the S&P 500 earnings numbers actually showing in 2026?
The earnings picture in 2026 is unusually strong by almost any measure.
According to FactSet, analysts are projecting year-over-year S&P 500 earnings growth of 32.4% for the full calendar year 2026. For Q3 specifically, the index is expected to report earnings growth of 29.5% which would mark the third consecutive quarter above 25% and the eighth consecutive quarter of double-digit earnings growth.
The guidance from companies has been equally constructive. Of the S&P 500 companies that issued earnings guidance for Q3, 62% issued positive guidance — well above the five-year average of 40% and the ten-year average of 41%. Companies continue to raise expectations.
The current forward P/E of 19.0x is below the five-year average of 19.8x and in line with the ten-year average of 19.1x. In other words, the market is cheap relative to where it has typically traded over the past decade.
Why does this distinction matter more than the headline price number?
When markets rise primarily because investors are willing to pay more for the same earnings (multiple expansion), that can be, but is not always, problematic.
When markets rise because corporate earnings are growing and especially when growing faster than prices, that is a fundamentally different situation. The market is catching up to improved economic reality.
Thus far, the 2026 rally belongs to the second category which is the right reason for a market to rise.
This also changes how to think about the risk of being invested right now. A market trading at a premium to its historical average on a forward P/E basis carries meaningful downside risk if earnings disappoint. A market trading below its historical average (as this one is) has a built-in cushion. Earnings would need to deteriorate significantly from here before the market looked overvalued by historical standards.
What does this mean for Canadian investors heading into the end of 2026?
It means the fundamental case for staying invested in broadly diversified equity portfolios is better supported by fundamentals today than it was at the start of the year — even though prices are higher.
The key question to be asking today is: does the process driving your portfolio’s results reflect the facts, or fears based on the very noisy political and economic environment?
If you want to talk through how your portfolio is positioned in the current environment, reach out any time. Understanding what is driving markets is exactly the kind of conversation our Wealth Road Map process is built around.
Sources: FactSet Earnings Insight Q3 2026, John Butters (insight.factset.com, October 2, 2026) | Motley Fool: “S&P 500 Is Near an All-Time High but Trading at Its Lowest Valuation in a Year” (fool.com, October 1, 2026) | ChartRow S&P 500 YTD Return 2026 (chartrow.com) | Yahoo Finance: “The S&P 500 Is Up 10% in 2026” (finance.yahoo.com)
Conrad Kluge CFA, CFP®, Senior Wealth Advisor, Senior Portfolio Manager, leads the Kluge Wealth Advisory Group and is a financial advisor at Wellington-Altus Private Wealth, working with high-net-worth families in Calgary, Alberta. This post is for informational purposes only and does not constitute investment advice. Please consult with a qualified financial professional regarding your specific situation.