Capital Economics’ head of markets Asia-Pacific, Thomas Matthews, has outlined three key reasons for a continued positive outlook on the US equity benchmark, the S&P 500. His analysis begins with a focus on the robust profit outlook, particularly within the information technology sector. Matthews highlighted Nvidia’s strong performance, suggesting that the S&P 500 IT sector experienced aggregate earnings per share (EPS) growth of approximately 25 per cent last year. This growth rate surpasses expectations for 2024, mitigating concerns about a potential slowdown in earnings growth. The S&P 500 is a stock market index tracking the performance of 500 of the largest publicly traded companies in the United States. Capital Economics is a macroeconomic research company offering independent commentary and forecasting.
Beyond the tech sector, Matthews pointed to strengthening earnings in the three largest non-tech sectors: healthcare, industrials, and financials. He argued that this broadening of earnings strength provides a cushion for the S&P 500, even if tech earnings growth decelerates. This diversification across sectors could contribute to a more stable and sustainable performance for the overall index.
Looking ahead to 2026, Matthews sees further potential for growth. Despite recent concerns about capital expenditure and software companies, analyst forecasts and company guidance suggest another year of double-digit aggregate EPS growth. Tech companies are expected to be at the forefront of this growth, continuing to drive the overall performance of the S&P 500.
Matthews also noted that the S&P 500’s price/forward earnings ratio has remained relatively stable over the past two years, suggesting room for further valuation increases. Capital Economics’ end-2026 forecast for the S&P 500 is 8000. The S&P 500 was trading at 6908.92 near 2.30pm in New York on Thursday (6.30am on Friday AEDT).
