This surprising wrinkle in the 2026 bull market could drive stocks higher

This surprising wrinkle in the 2026 bull market could drive stocks higher Brian Sozzi · Executive Editor Mon, July 6, 2026 at 2:02 PM GMT+2 2 min read ^GSPC Imagine where the stock market would be this year if price-to-earnings (P/E) ratios were expanding too. The quick insight: Despite investor enthusiasm for owning stocks this year and there being only one 5% or more pullback, valuation in the broader market hasn't kept pace.   The S&P 500's forward P/E ratio is now below where it started in 2026, Truist chief market strategist Keith Lerner pointed out (see chart below).

The reason: The P/E ratio is a simple fraction, with the "P" being the price of a stock or market and the "E" representing earnings. When the denominator grows faster than the numerator, the multiple compresses. The down-trending P/E ratio.

· Truist This year, corporate earnings have been quite strong, with the S&P 500 tracking toward back-to-back quarters of above 20% earnings growth. With companies hauling in near-record profits, the "E" has risen significantly, pulling down the overall valuation multiple for the S&P 500 even as stock prices remain historically high. What's next: "We are in an earnings boom, with estimates rising across large, mid, small caps, and emerging markets," Lerner said.

The estimated year-over-year earnings growth rate for the second quarter is 23. 3%, which is above the five-year average of 16. 4% and the 10-year average of 10.

3%, according to data from FactSet. If 23. 3% is the actual growth rate for the quarter, it will mark the second consecutive quarter of year-over-year earnings growth above 20% and the seventh consecutive quarter of double-digit growth for the index.

Ten of the 11 sectors in the S&P 500 are expected to report year-over-year earnings growth, led by the Energy, Information Technology, and Materials sectors. The bottom line: If the S&P 500 delivers above its expected 23. 3% earnings growth for the second quarter, it could help support the "P" part of the P/E ratio equation as analysts race to mark up estimates further.

That could set the stage in the third quarter for a one-two punch of rising stock prices and rising earnings, which the bulls would gladly welcome. Brian Sozzi is Yahoo Finance's Executive Editor and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi , Instagram , and LinkedIn .

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