Investors appreciate that nothing goes up in a straight line – occasionally stocks get ahead of themselves and need a period to ‘reset’, which for those looking at the longer term can often be an opportunity to add to their holdings at lower prices.

It feels as though we are going through something of a ‘reset’ in markets right now, as stocks re-price to take account of all the geopolitical upheaval since the start of the new Trump administration.

FUNDAMENTALS REMAIN SOLID FOR NOW

The good news is that as far as fundamentals go, with around 95% of S&P 500 companies having filed, as-reported fourth-quarter earnings in the US were ahead of expectations across every industry and at least on a par with the third quarter in terms of beats to misses.

In other words, companies in general are in good health and growth isn’t restricted to a few pockets of the economy.

Indeed, in the sectors with the largest number of constituents – financials, industrials and information technology – a higher proportion of stocks beat expectations than across the market in general (roughly 80% against 74%).

For the year to December 2024 ‘earnings per share’ for the S&P 500 were $211, in line with forecasts dating back to last June and representing an increase of just under 10% on the previous year.

For 2025, analysts are forecasting index earnings of $250 or an increase of around 18.5%, although estimates will probably come down as the year progresses, as they do every year, so we would pencil in 10% to 15% growth to leave scope for a small downward revision.

FURTHER GROWTH EXPECTED IN 2026

For the first time we also have estimates for 2026, where analysts are expecting growth of 15% to $287 although again we would expect that consensus to fade over time.

If we assume earnings are in the region of $240 this year and say $275 next year, based on a current reading of 5,789 points it puts the index on a multiple of 24 times falling to 21 times.

The bulk of this year’s operating earnings (around 67%) are expected to come from technology, financial, health care and communication services stocks, the same four sectors which generated most (around 64%) of last year’s earnings.

However, it is worth noting financials and communications services are seen contributing less than they did last year while health care and technology are seen providing a significant lift.

Energy stocks are also seen contributing slightly less than last year (4.9% against 5.7%), while consumer stocks – both staple and discretionary – are expected to be challenged by tariffs and rising prices and are expected to contribute just 14.1% of overall earnings against 15.9% last year.