US Portfolio Manager Ben Carlson: S&P 500 Earnings Growth Far Outpaces Share Prices This Year, Valuations Are Actually Compressing
Ben Carlson, portfolio manager at US-based Ritholtz Wealth Management, points out that while S&P 500 earnings grew nearly 30% in 2026, the index rose only about 12%, meaning valuations are actually contracting. He uses data on the divergence between earnings and returns across decades since the 1930s to show that such disconnects are normal, citing the semiconductor industry where profits grew nearly 200% but share prices rose only about 40% as an example of the gap between market pricing and fundamentals.
In 2026, S&P 500 earnings growth approached 30%, while the index rose by only about 12%. This means that valuations did not expand as they typically do in a bull market; instead, they compressed. In an article published on October 30, Ben Carlson, a portfolio manager at US-based Ritholtz Wealth Management, highlighted this phenomenon as a core observation, noting that it challenges a widely held intuition: that rising markets must be accompanied by rising valuations.
Carlson first presented the trajectory of earnings expectations. At the beginning of the year, analysts estimated full-year S&P 500 earnings at slightly above $310. After several quarters of earnings reports beating expectations, this estimate has been revised upward by nearly 20%. He emphasized that this is not a long-term forecast for earnings three, five, or even ten years out, but simply for the current year, 2026. With earnings growth around 30% and price appreciation around 12%, the gap between the two directly points to declining valuations.
To illustrate that this divergence is not anomalous, Carlson looked back at data on S&P 500 earnings growth versus total returns by decade since the 1930s. He found that the two sometimes move in sync and sometimes diverge significantly: the 1940s, 1960s, 2000s, 2010s, and 2020s (thus far) were roughly in line; in the 1930s, the stock market performed poorly but earnings were even worse; in the 1970s, earnings far outpaced the stock market; and in the 1950s, 1980s, and 1990s, the opposite was true, with stock market gains far exceeding earnings growth. He calculated that the average absolute difference between the two numbers is close to 25%, with a median of 17%. In other words, significant divergence between earnings and returns is the norm, not the exception.