The Three Major Points

1. Earnings are winning	2. Rates are compressing P/E	3. 2027 is an EPS x P/E equation
Earnings expectations have accelerated fast enough to overpower higher long-term rates – so far.	The market can rise while becoming cheaper if EPS grows faster than price. That is exactly what FactSet shows.	2027 outcomes depend on both earnings and the multiple: roughly 8,500 in a constructive case, 8,000 in a base case, and near 6,500 if EPS disappoints while rates stay high.

VISUAL 1 – Opening comparison: S&P 500 vs. 10-Year Treasury since April 7, 2025

Word-for-Word Broadcast Script

OPEN – TWO THINGS THAT RARELY HAPPEN TOGETHER ARE

For most of the last year and a half, investors have been watching two lines moving higher.

Stock prices – and interest rates, at the same time.

Normally, that’s not the combination stock investors ask for.Go back to April 7, 2025, near the tariff-panic market lows. The S&P 500 closed around 5,062.The 10-year Treasury yield was about 4-0-4.15 percent. Today. Let’s check it out.

The S&P 500 is around 7,800, near record highs. But instead of falling, the 10-year Treasury yield has climbed toward 4.7 percent. That makes a roughly 55 percent increase in the S&P 500 while the 10-year Treasury yield increased by about half a percentage point. How can that happen? And why has it happened in the last 5 quarters? One word: earnings.

Today we’re going to look at the tug-of-war between earnings and interest rates, and what that battle could mean for the S&P 500 through year-end 2026 and into 2027. And we’re keeping this simple – three points.

First- EARNINGS ARE WINNING

For years on Stock Talk, and at Oak Harvest, we’ve said something very simple:

Over longer time periods, earnings drive stock prices. Interest rates determine how much investors are willing to pay for those earnings. Right now, earnings are doing some very heavy lifting.

FactSet’s August 7 Earnings Insight shows Q2 S&P 500 earnings growing an extraordinary 50.4 percent year over year. Now, there’s an important footnote. Alphabet and others had unusually large investment-related gains. Take out those one-time gains and earnings growth falls from 50 percent to about 32 percent. But think about that.

Thirty-two percent earnings growth after removing the one-time contributors is still enormous. And this isn’t merely backward-looking.

FactSet estimates:

Q3 earnings growth: 27.4 percent. Q4: 25.2 percent. And for full-year 2026: 30 percent earnings growth. Then another 13.6 percent is currently projected for 2027.

That’s an earnings acceleration into 3q26 powerful enough to offset something that normally hurts stocks: higher long-term interest rates. And earnings quality is broader than the headline number suggests. Ten of eleven S&P sectors reported year-over-year earnings growth.

Technology earnings increased more than 70 percent, with semiconductor and semiconductor-equipment earnings up 135 percent.Revenue growth was 15 percent.

And margins reached 16.9 percent, potentially the highest FactSet has recorded since it began tracking the series in 2009. Even excluding Alphabet and Amazon, the margin would have been 15 percent – still a record. That’s the fundamental engine underneath this market.

VISUAL 2 – FactSet EPS acceleration: Q2 2026 actual/blended, Q3-Q4 2026 estimates, CY 2026 and CY 2027 EPS

 

FactSet bottom-up EPS chart (pages 31-32): CY2026 $358.66 and CY2027 $405.17

 

POINT TWO – INTEREST RATES AREN’T STOPPING STOCKS; THEY’RE a HEADWIND COMPRESSING THE P/E

We’ve talked many times on Stock Talk about  two of the major components of stock returns:

Earnings – and the multiple investors pay for those earnings. Think of it this way:

S&P 500 = Earnings x P/E multiple.

If earnings rise 20 percent and the P/E stays unchanged, theoretically the market can rise about 20 percent. But if earnings rise 20 percent while the P/E falls 10 percent, some of that earnings growth gets eaten by multiple compression. And that is essentially what’s happening now.

FactSet says that at the end of June the S&P 500 traded at about 20.4 times forward earnings.

By August 7, that multiple had declined to 20.0 times. Yet the S&P 500 itself had risen 2.8 percent.

Why? Because the forward earnings estimate increased 4.7 percent – faster than the stock market itself. The market became less expensive on forward earnings even though stock prices went up. That is earnings doing the work. But there’s a headwind to stocks.

The 10-year Treasury. Back in April 2025 it yielded around 4.15 percent. Today we’re around 4.7 percent. Why does that matter? Because a Treasury bond competes with stocks for investor capital.

As the risk-free yield rises, investors generally demand a higher expected return from equities. Some might find the Treasury yield attractive and substitute the safety, or less volatile nature, of fixed income securities for parts of their equity’s allocation.

The easiest way for that to happen is through a lower P/E multiple. So the market is fighting a tug-of-war: Earnings growth is pulling the S&P 500 higher. Higher interest rates are pulling the P/E lower.

So far – earnings are winning.

 

FactSet forward P/E chart (pages 33-34): 20.0x current vs. 19.0x 10-year average

POINT THREE – 8,000, 8,500…OR 6,500?

Now let’s turn this into something useful.

Instead of pretending we know exactly where the S&P 500 will trade next year, many strategists build a  valuation matrix. Because once you have an earnings estimate, the market level can be a question of what P/E investors are willing to pay.

FactSet’s latest report has the forward S&P 500 multiple around 20 times earnings, versus a 10-year average around 19 times.  For 2026, an S&P 500 above 8,000 at some point in time during summer remains mathematically very achievable. The question gets much more interesting in 2027.

Let’s use approximately $400 of S&P earnings as a reasonable round-number framework for forward analysis. At 21 times $400, the S&P 500 is 8,400. Call it an 8,500-bull case where the 10-year Treasury stays below 4.75%.

What could get us there? Earnings estimates continue rising. Inflation cools.

The 10-year Treasury stays below 4.75%.  Recall the guestimate old rule of 1/10 year treasury yield= PE.  1/.0475=21.05x. So right now, investors remain willing to pay roughly 21 times earnings.

That’s the earnings-up, rates-flat scenario.

But now it flips. Suppose the 10-year moves toward 5 percent because inflation, energy prices, crowding out by AI capital investment, fiscal deficits or Treasury supply keep long rates elevated.

Even if earnings keep rising, investors may refuse to pay 20- or 21-times earnings. At 18 times, say a 10-year Treasury at 5.55%, $400, you get 7,200. At 17 times: 6,800.

And here’s the real bear case. Suppose earnings disappoint as economic growth slows, and instead of $400 we get something closer to $360-$370. At the same time interest rates go higher due to inflation?

Put a 17.5-times multiple on $370 and you get roughly 6,475. Call it 6,500.

That’s how you get there. Not because corporate America suddenly stops earning money.

But because both sides of the valuation equation move against you at once: earnings fall short AND the P/E compresses.

VISUAL 4 – 2027 Valuation Matrix

Scenario	EPS	P/E	Illustrative S&P 500
Bull – rates fall	$405	21x	8,505
Base – rates stable	$400	20x	8,000
Higher-rate case	$400	18x	7,200
Bear – rates up + EPS down	$370	17.5x	6,475

Illustrative scenarios – not forecasts.

CLOSE – WATCH THE TWO LINES

So here’s what investors should watch through the remainder of 2026.

Not ten indicators. Two.

Forward earnings estimates on the S&P500. We suggest you use FactSet as a good public source. And the 10-year Treasury yield. Since April 2025, both stock prices and interest rates have gone higher.

That normally doesn’t happen for very long. But it can happen when earnings growth is accelerating faster than interest rates are compressing valuations. That’s been happening for 4 quarters now.

FactSet gives us a remarkable statistic that summarizes the entire story: Since June 30, the S&P 500 rose 2.8 percent. But forward earnings rose 4.7 percent.

That’s why the P/E fell while the market rose. And that may be the most important message for investors right now. Eight thousand isn’t dependent on interest rates collapsing. Strong enough earnings can get us there. But getting meaningfully above 8,500 becomes much easier if earnings keep rising and the 10-year Treasury finally falls. Say the Fed turns dovish or provides liquidity like they did a few weeks ago supporting the Japanese Yen.

Conversely, the dangerous combination isn’t merely higher rates. It’s higher rates plus falling earnings estimates. That’s the combination that could turn an ordinary valuation correction into something closer to our 6,500-downside scenario. So don’t just watch the S&P 500 every day.

Watch what it earns – and watch what the bond market is charging for money. Because between those two numbers – earnings and interest rates – lies the answer to where this bull market goes next.

If you’re retired or getting close to retirement and would like a second opinion on your investment and retirement plan, use the link below to schedule a free consultation with Oak Harvest Financial Group. There’s no obligation. We’ll learn more about your goals, income needs, and concerns and help you understand whether there may be opportunities to improve your retirement plan. https://click2retire.com/lets-connect

Selected Data Notes

• FactSet Earnings Insight, August 7, 2026: Q2 blended EPS growth 50.4%; 32.0% excluding Alphabet and Amazon; Q3/Q4 2026 EPS growth 27.4%/25.2%; CY2026/CY2027 growth 30.0%/13.6%; forward P/E 20.0x.
• FactSet pages 31-32: bottom-up CY2026 EPS $358.66 and CY2027 EPS $405.17.
• FactSet: since June 30, S&P 500 price +2.8% versus forward 12-month EPS +4.7%, producing modest P/E compression.
• Opening market levels in the prior script are rounded reference points for broadcast narration and should be refreshed immediately before air if desired.