The Rally Has Legs. Earnings Show It.

People working at the New York Stock Exchange on Monday. (NYSE)

It’s called the bottom line for a reason: If earnings are on their way up, investors can forgive a lot else.

Rising earnings estimates may be enough to beat the September curse, Yardeni Research said in a recent research note. And they may be enough to avoid the seemingly inevitable meltdown that follows a so-called meltup.

“A meltdown needn’t follow it if it is an earnings-led meltup rather than a valuation-led meltup! That is, if it has fundamental support from strong earnings.”

The good news is that is what has been happening in the postpandemic rally. Even more positive is that while Yardeni has been bullish on the economy, stocks, and earnings, profits have been growing even more quickly than the research shop, led by the strategist Ed Yardeni, has predicted.

Its calculations pointed to S&P 500 companies’ collective forward earnings reaching $300 a share by the end of the year. With most of 2025 in the rearview mirror, the next year’s earnings expectations are starting to look like the 2026 consensus, which recently stood at $304.12. Forecasts of earnings per share for this year are also heading higher, bucking the usual autumn trend.

Rising earnings make the index’s valuation more palatable—a higher E makes the P/E ratio lower if the prices remains the same—makes allowing for an easier path upward. The S&P 500’s current forward P/E ratio is around 22, which it implies it could meet Yardeni’s year-end target of 6600 if EPS for the year comes in at $300, as the firm expects. If earnings keep rising, lifting 2026 EPS to $310, that would point to the index going as high as 6820, compared with around 6500 on Tuesday afternoon.

That is more than just wishful thinking. There are reasons to believe that the momentum in earnings growth can continue.

It is true that the Magnificent Seven tech stocks— Alphabet , Amazon.com , Apple , Meta Platforms, Microsoft , Nvidia, and Tesla —have been responsible for much of the increases in earnings forecasts. But analysts have been positive on EPS growth for the other 493 stocks in the index as well.

So far, tariffs don’t appear to be squeezing profitability for most companies. The S&P 500’s estimated profit margin rose to a record high of 13.9% during the week of Aug. 28, Yardeni said.

That implies quite a bit of potential gains for the S&P 500 even without considering the possibility that valuations might rise. While the S&P 500’s forward P/E multiple is bumping up against the upper limit of the range it has been in since late 2020, there could be support for expansion here too, even if earnings do the heavy lifting.

That is another reason why autumn’s chill need not reach the stock market.

Write to Teresa Rivas at teresa.rivas@barrons.com