{"id":3695,"date":"2026-09-23T16:30:22","date_gmt":"2026-09-23T16:30:22","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/rosedalefamilyoffice\/?p=3695"},"modified":"2026-09-23T16:30:22","modified_gmt":"2026-09-23T16:30:22","slug":"strong-earnings-growth-is-the-basis-of-a-positive-outlook","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/rosedalefamilyoffice\/blog\/2026\/09\/23\/strong-earnings-growth-is-the-basis-of-a-positive-outlook\/","title":{"rendered":"Strong earnings growth is the basis of a positive outlook"},"content":{"rendered":"<p><strong>Irrational exuberance?\u00a0 We don\u2019t think so<\/strong><\/p>\n<p>Trade war, military conflicts, high oil\/gas prices, rising interest rates, mid term elections, implications of Artificial Intelligence&#8230;.the issues appear daunting. So why are equity markets still hovering near all-time highs? The quick answer is robust earnings growth. However, given the gulf between perceived risks and current market conditions, a deeper explanation is warranted.<\/p>\n<p>Stock prices and index levels capture the attention of most investors and the media. However, the two most important ingredients, earnings and valuation, often get relegated to the back seat. It\u2019s the interplay of these two variables that ultimately determines price. So far this year, earnings and valuation have moved dramatically in opposite directions, with earnings reflecting strong underlying economic conditions while a sizeable contraction in valuation is pricing in a multitude of risks. The 11.5% year-to-date gain in the S&amp;P500 index (as of September 17) is the product of a 30% increase in rolling 12-month forecast earnings and a 15% correction in the price\/earnings multiple (data per Bloomberg). Seen through this lens, we think current market levels are more rational than first glance.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>The best earnings growth in decades<\/strong><\/p>\n<p>The key drivers of corporate earnings, namely revenue and margins, have been firing on all cylinders, resulting in the fastest projected rolling two-year corporate earnings growth pace for the S&amp;P500 in over 30 years (data per Bloomberg). While the S&amp;P500 may be experiencing the fastest acceleration in earnings growth among global peers due to its heavy weighting in technology stocks, the equal weighted S&amp;P500, S&amp;P\/TSX Composite, and MSCI World Excluding U.S. indices are also experiencing above trend earnings growth.<\/p>\n<p>Revenue growth is being aided by healthy gains in nominal GDP growth (i.e. real GDP growth plus inflation), a super cycle in infrastructure spending, and ongoing fiscal stimulus by most governments. Meanwhile, the highest operating margin for the S&amp;P500 in over 30 years could be early evidence of technology-driven productivity gains.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Markets are not partying like its 1999<\/strong><\/p>\n<p>For those old enough to have experienced the market rally of the late 1990s, it\u2019s tempting to draw parallels to current market conditions. Afterall, the late 1990\u2019s was the dawn of a new technology known as the internet and investor enthusiasm was high. While the internet boom of this era did indeed construct the foundational infrastructure for a technology that is now ubiquitous, the enthusiasm eventually deflated during the early 2000s resulting in sharp equity market declines.<\/p>\n<p>The primary difference between current market conditions and the late 1990s is the level of exuberance. Whereas the S&amp;P500\u2019s price\/forward 12-month earnings multiple topped out 25x and the S&amp;P500\u2019s technology sector\u2019s valuation peaked at 58x in March 2000, these indices are currently trading 19x and 20x, respectively (data per Bloomberg). Materially cheaper!<\/p>\n<p>The performance of the S&amp;P500 Equal Weight index, which we view as a better measure of the broad market, is keeping pace with the technology-laden S&amp;P500 so far this year (to September 17). This index has experienced a similar divergence between earnings expectations and valuation multiple. Trading at 15.8x price to forward 12-month earnings expectations, the index is 6% cheaper than at the beginning of the year and 5% cheaper than its 10-year average (data per Bloomberg). The average stock in the S&amp;P500 is not expensive in our opinion.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>The narrative on interest rates has changed, for now<\/strong><\/p>\n<p>2026 started with expectations that the US Federal Reserve would cut interest rates by 50 bps over the year. The Bank of Canada was expected to remain on hold. The oil supply shock resulting from the Middle East conflict has flipped the narrative on inflation and interest rates. Instead of cutting rates, the Federal Reserve raised its benchmark rate by 25bps last week and could raise it once more by the end of the year. In Canada, even though core CPI is running at the 2% target, the market is now pricing at least one 25 bps hike by year end.<\/p>\n<p>While rising interest rates are among the headwinds facing equity markets and likely reflected in the form of lower valuation multiples, we don\u2019t think central banks are on the cusp of a steep interest rate hiking cycle. Indeed, after delivering a 25 bps increase last week, the consensus of voting members of the Federal Reserve calls for an additional 25bps increase later this year, followed by a pause in 2027, and modest cuts in 2028 and beyond. As this year has demonstrated, the rate outlook is fluid but manageable in the context of equity market valuation.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Market outlook remains constructive<\/strong><\/p>\n<p>Our market outlook throughout 2026 has placed emphasis on earnings growth as the main driver of performance rather than increased valuation. Indeed, earnings growth during the first two quarters exceeded consensus expectations by a wide margin. With valuation materially cheaper than at the beginning of the year, and positive revisions to Q3, Q4, and 2027 earnings estimates, our medium-term equity market outlook remains constructive. This stance does envision periodic bouts of volatility, whether it be from upcoming mid-term elections or other geopolitically driven uncertainties.<\/p>\n<p>As always, we encourage you to contact us if you have any questions regarding your portfolio and our market outlook.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Irrational exuberance?\u00a0 We don\u2019t think so Trade war, military conflicts, high oil\/gas prices, rising interest rates, mid term elections, implications of Artificial Intelligence&#8230;.the issues appear daunting. So why are equity markets still hovering near all-time highs? The quick answer is robust earnings growth. However, given the gulf between perceived risks and current market conditions, a [&hellip;]<\/p>\n","protected":false},"author":255,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","_exactmetrics_skip_tracking":false,"footnotes":""},"categories":[25,19],"tags":[],"class_list":["post-3695","post","type-post","status-publish","format-standard","hentry","category-love-letters","category-read"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Strong earnings growth is the basis of a positive outlook - The Rosedale Family Office<\/title>\n<meta name=\"description\" content=\"Irrational exuberance?\u00a0 We don\u2019t think so Trade war, military conflicts, high oil\/gas prices, rising interest rates, mid term elections, implications of\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/advisor.wellington-altus.ca\/rosedalefamilyoffice\/blog\/2026\/09\/23\/strong-earnings-growth-is-the-basis-of-a-positive-outlook\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Strong earnings growth is the basis of a positive outlook - 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