1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 113
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
Looking ahead, consensus is looking for 2026 EPS growth of ~13%, though expectations are rising.
While EPS growth has handily exceeded consensus estimates in recent years, thanks in part to
muted expectations, the bar has been raised considerably for 2026.
The earnings growth bar has been raised for upcoming quarters
25%
20%
15%
10%
5%
0%
1Q24
2Q24
3Q24
4Q24
1Q25
2Q25
Actual YoY EPS growth
3Q25
4Q25
1Q26
2Q26
3Q26
4Q26
Forecasted EPS growth
Source: Bloomberg Finance LP, Scotia Wealth Management
Notably, earnings growth for the Mag 7 stocks, which has been a key driver of equity performance
in recent years, is expected to cool. Luckily, consensus expects the rest of the index to pull its
weight, narrowing the EPS growth gap between the two cohorts. This may help the index meet
its earnings growth targets, but the margin for error remains thin amid monetary policy
uncertainty, elevated valuations, and a market that seemingly must be fed with sustained, robust
earnings growth to remain satiated.
Earnings growth is expected to broaden beyond the Mag 7
100%
80%
YoY EPS growth
60%
40%
20%
0%
2022
2023
2024
2025
2026
2027
-20%
-40%
Forecast period
Mag 7
S&P 500 ex. Mag 7
Source: Bloomberg Finance LP, Scotia Wealth Management
Our current positioning reflects our caution on the outlook. We believe a neutral allocation
between equities and fixed income remains the most appropriate mix for most investors, allowing
for upside participation as well as downside protection in the event that markets come under
duress.
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