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). <\/p>\n
The reason:<\/strong> 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. <\/p>\n 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. <\/p>\n What’s next:<\/strong> “We are in an earnings boom, with estimates rising across large, mid, small caps, and emerging markets,” Lerner said. <\/p>\n 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. <\/p>\n 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. <\/p>\n The bottom line:<\/strong> 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. <\/p>\n Brian Sozzi<\/a> is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi<\/a>, Instagram<\/a>, and LinkedIn<\/a>. Tips on stories? Email brian.sozzi@yahoofinance.com. <\/p>\n Click here for in-depth analysis of the latest stock market news and events moving stock prices<\/strong><\/a> <\/p>\n Read the latest financial and business news from Yahoo Finance<\/strong><\/a> <\/p>\n ![\"The](\"https:\/\/s.yimg.com\/lo\/mysterio\/api\/3819A37D4D38DC4A22098189C09B4F3CF042FDD526311F4E24458649DF8BE1CB\/subgraphmysterio\/resizefit_w960;quality_80;format_webp\/https:%2F%2Fd29szjachogqwa.cloudfront.net%2Fimages%2Fuser-uploaded%2Fscreenshot-2026-07-05-at-120841-pm_4019.png\")