Wall Street is Losing Momentum: Are Fundamentals Still Keeping Up with the Bull Market?
Date: 19 August 2026
Market Overview
The S&P 500 index is experiencing a pullback but remains close to its all-time highs. This raises questions about whether the market has become overvalued. While index levels are important, they do not provide a complete picture of market dynamics.
Earnings Growth
In the latest quarter, S&P 500 earnings surged by 50.4% year-over-year, significantly surpassing earlier expectations of 23.2%. This growth rate is the highest since Q3 2021, driven largely by major companies like Alphabet and Amazon, which reported gains from investments in SpaceX and Anthropic. Excluding these effects, the earnings growth would still be a robust 32% year-over-year.
This marks the second consecutive quarter of earnings growth exceeding 20% and the seventh straight quarter of double-digit growth. Revenue growth is also on the rise, with a 15% year-over-year increase, the strongest since Q4 2021. Even when excluding energy and technology sectors, revenue growth stands at approximately 9.7%.
Sector Performance
Notably, 8 out of the 11 S&P 500 sectors are experiencing double-digit earnings growth. The energy sector has seen earnings increase by around 135% year-over-year, while communication services and consumer discretionary sectors are growing nearly 110%. This broad-based growth challenges the notion that the bull market is solely driven by a few large-cap stocks.
Valuation Metrics
The S&P 500's forward price-to-earnings (P/E) ratio is currently around 21.8x, which is elevated but not at the extremes seen during the dot-com bubble or the post-pandemic surge. Importantly, the index's rise is accompanied by increasing earnings expectations, indicating that the market is not merely expanding due to investor optimism but is supported by solid fundamentals.
Earnings Revisions
Historically, S&P 500 earnings estimates tend to be revised downward throughout the year. However, in 2026, the trend is reversed, with forecast earnings growth approaching 30% and expectations raised by about 15% since the year's start. This positive revision trend is atypical and suggests a strong growth outlook, although it raises concerns about whether future expectations can continue to be met.
AI Capital Expenditure
Investment in AI infrastructure remains robust, with projected capital expenditures (CAPEX) for major tech companies like Alphabet, Amazon, Meta, and Oracle increasing significantly. This trend indicates that these companies do not anticipate a slowdown in demand for AI-related services, which is crucial for the broader tech ecosystem.
Market Outlook
The current market environment suggests that while the S&P 500 is expensive, it is underpinned by strong fundamentals. Investors are pricing in continued earnings growth and high levels of investment, particularly in AI. However, the market lacks a significant margin for error; if earnings revisions slow down while share prices remain high, the current valuation could become problematic.
In conclusion, the key question for investors in the coming quarters is whether earnings will continue to meet the high expectations that have been set, as this will determine the sustainability of the current market rally.