U.S. Stocks at Record Highs: Earnings Expansion or Multiple Risk?
On the first trading day of May, the S&P 500 closed at 7,230.12, its sixth straight weekly gain and a fresh all‑time high. The tape looked euphoric. The valuation math behind it is less clear.
According to FactSet and other aggregates, the S&P 500 now trades at roughly 22–23 times forward earnings, materially above its 10‑year average near 18. MacroMicro’s latest series puts the forward P/E around 21 in May, while YCharts’ forward estimate shows 23.6 for late‑2026, down from 28.4 a year earlier but still historically elevated. FactSet data cited in late 2025 had already flagged 23.1 times forward earnings as the highest 12-month multiple in more than five years, at a time when analysts were projecting record S&P EPS of 268 dollars for 2025 and 305 dollars for 2026.
The current rally therefore rests on two planks: actual earnings growth and investors’ willingness to pay more for those earnings. On the earnings side, consensus still expects robust growth, underpinned by strong margins in technology, communications and some consumer names, and by a surge in AI‑related capex and infrastructure spend. Goldman Sachs estimates that AI infrastructure will account for about 40% of all S&P 500 earnings growth in 2026, with data‑centre and semiconductor investment approaching 2% of US GDP. That forecast helps justify part of the premium.
On the multiple side, however, the market is paying today for cash flows that depend on both macro conditions and AI monetisation playing out as hoped. FactSet notes that previous episodes when the S&P 500 traded above 22–23 times forward earnings — notably in 2018–2020 — were followed by periods of higher volatility and, in some cases, valuation compression as growth and policy expectations were forced to reset. The risk this time is similar: if the Federal Reserve does not deliver the sequence of rate cuts implied by current market pricing, or if AI‑linked profits lag capital expenditure, earnings could disappoint and multiples could fall simultaneously.
In short, US stocks in May 2026 are not just high because earnings have grown; they are high because investors are also paying up for those earnings. Whether this turns into a benign “earnings catch‑up” or a sharper derating depends on how the next few quarters reconcile today’s optimistic growth and policy assumptions with the realities of corporate profit delivery.