14 MAY 2026
One reason why equity markets are proving to be so resilient is that valuations are not yet at the extremes that historically preceded major market dislocations.
The chart shows that US large cap stocks are currently trading around 21x forward earnings.
However, this assumes a punchy 18%y/y profits growth for calendar year 2026 (source: Factset), which leaves little room for disappointment.
The market’s ability to push higher from here thus increasingly depends on whether optimistic earnings forecasts are delivered.
The tech sector will be key. It is the dominant driver of overall profits growth so any signs that the AI-capex boom is waning, will likely dampen investor sentiment.
Conversely, headline valuations appear manageable if profits momentum remains strong.
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