1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 120
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
earnings growth assumption is not inherently demanding when evaluated against earnings
history rather than GDP alone.
Historically, corporate profit growth has handily outpaced broader economic growth
350
Index = 100 (2010)
300
7.8% CAGR
250
200
150
4.9% CAGR
100
50
2011
2013
2015
2017
S&P 500 earnings
2019
2021
2023
2025
U.S. nominal GDP
Source: Bloomberg Finance LP, Scotia Wealth Management
Importantly, this does not imply that equity returns will be smooth or linear. Valuations, interest
rates, and macro conditions can drive meaningful deviations from fair value over shorter
horizons. However, over time, earnings growth has remained the dominant driver of equity
returns, reinforcing the role of equities as a core growth engine within long-term portfolios. In our
view, this distinction is critical. Near-term discipline and risk management are warranted when
valuations are elevated and margins for error are thin. At the same time, stepping away from
equities altogether risks forfeiting the compounding benefits that accrue over longer horizons. A
balanced approach – maintaining equity exposure while avoiding excessive risk-taking – allows
investors to participate in long-term growth while remaining resilient to short lived bouts of
volatility.
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