S&P 500 Hits New Highs—Where the Market Stands According to Earnings Data
The Q1 2026 earnings season is in full swing. With over 300 of the 500 S&P 500 companies having reported their results, the market remains near year-to-date highs. The S&P 500 is up 7% year-to-date, while the NASDAQ is hovering around +10%.
On the other hand, there are persistent voices claiming that the market is too expensive and that a recession is near. The Shiller P/E ratio is over 40x, and the Wilshire 5000 to GDP ratio is at 228%, levels significantly above historical averages.
However, what does the actual earnings data show? Based on weekly commentary from former hedge fund manager Steve Eisman (the inspiration for the movie 'The Big Short'), we decode the current market.
1. All 11 sectors beat expectations—data that refutes the recession argument
1-1. Revenue growth rate: All sectors outperformed analyst expectations
As of January 1, 2026, analysts predicted a +7.5% Q1 revenue growth rate for the S&P 500 as a whole. This was revised upward to +9% by April 1, and the actual result reached +10.5%.
In the Information Technology sector, the actual result was +28.7% against a January forecast of +20%. Eisman states the following regarding this data:
'All 11 sectors, I repeat, all 11 sectors, recorded revenue growth that exceeded analyst expectations from January 1. Even in the context of the war with Iran, pessimism regarding revenue growth ultimately proved to be unfounded.'
1-2. Profit growth rate: 8 sectors exceeded expectations
A similar trend was seen in terms of profits. 8 out of 11 sectors achieved profit growth exceeding January forecasts. Only three sectors—Consumer Staples, Energy, and Healthcare—fell short, which can be attributed to specific factors such as war, tariffs, and structural issues in healthcare.
1-3. Operating profit margin: Reached a record high of 20%
The S&P 500's forward 12-month expected operating profit margin reached 20%, hitting an all-time high. Considering it was 16% in 2023, this is a 4-point increase over three years.
The fact that profit margins are expanding alongside revenue is significant. If only revenue were increasing, suspicions of 'channel stuffing' might arise, but because profit margins are also improving, such criticism is difficult to sustain.
2. The structure of a K-shaped economy—why 'hardship for the common person' and 'market strength' coexist
The framework Eisman repeatedly uses is the 'K-shaped economy'.
The upper tier of tech, industrials (power-related), and finance drives GDP and the market. Meanwhile, low-to-middle-income consumers remain in a difficult situation. However, even if this 'lower part of the K' shrinks, the impact on the S&P 500 is limited.
Why? Because the Information Technology sector accounts for 35% of the S&P 500, and when tech-related companies like Amazon, Google, and Meta are added, it reaches about 50%. Since half of the index is composed of tech, if tech is doing well, the index rises. Eisman points out that this is a matter of 'math,' not 'sentiment'.
3. Review of major company earnings
3-1. Palantir (PLTR)—stock price falls despite strong earnings
Despite posting strong numbers with EPS up 154% year-on-year and revenue up 85% to $1.63 billion, the stock price fell 7% on Tuesday. It continues to struggle, down 22% year-to-date.
The background to this is the concern over "software replacement by AI." There is a persistent market narrative that as AI becomes more widespread, the value of existing software will be eroded, which is offsetting strong earnings. Even so, it is worth noting that the P/E ratio remains at a high level of over 100x.
3-2. AMD—Semiconductors maintain strong growth
Q1 revenue was $10.3 billion, up 38% year-over-year, and EPS was $1.37, up 43% year-over-year, both beating market expectations. Q2 guidance was also $11.2 billion, significantly exceeding the expected $10.5 billion, leading to a 15% rise in after-hours trading. This once again demonstrated the robust demand for semiconductors for AI data centers.
3-3. PayPal (PYPL) and Fiserv—The struggles of the payments sector
PayPal saw revenue growth of 7% and EPS beat expectations, but its Q2 guidance indicated a 9% year-over-year decline in profit, significantly missing the market expectation of a 4% decline. The stock price fell 8%, and is down over 20% year-to-date.
Fiserv also performed poorly, with Q1 EPS down 16% year-over-year and organic revenue growth at -4% (compared to the expected -2%). Although management was refreshed last October, there are no signs of recovery yet.
Eisman summarizes it this way: "If you want to invest safely in the payments sector, you have to go with Visa or Mastercard. Their network franchises are virtually impregnable."
3-4. Disney (DIS)—The reality of "the same stock price as 10 years ago"
EPS was up 8% year-over-year and revenue was up 6.5%, so the numbers themselves are solid. Despite war reporting, the theme park division saw revenue growth of 6.7%, and the entertainment division saw 9.7% growth as streaming gains offset the decline in linear television.
However, the most important point Eisman emphasized is the fact that "Disney's stock price is at the same level it was 10 years ago." The fact that it continues to post strong earnings while remaining stagnant in terms of shareholder returns is an important perspective for long-term investors.
3-5. Mixed results in consumer-related sectors
McDonald's announced solid earnings with same-store sales up 3.8%, showing it is overcoming the difficult consumer environment. On the other hand, Shake Shack saw its profits vanish year-over-year to nearly zero, and its stock price plunged 30%. Whirlpool significantly lowered its full-year guidance from $6 to $3–$3.5 due to the stagnation in the housing market, causing its stock to fall 12%.
4. "Is a Shiller P/E over 40x a danger signal?"—Counterarguments to the overvaluation theory
A question raised by a reader was the concern that the Shiller P/E (currently 40.4x) and the Wilshire 5000 to GDP ratio (228%) are significantly higher than their historical averages (17.8x and 85%, respectively).
Eisman's view is simple.
It is true that the market looks expensive, but the reason is that the proportion of tech in the market has structurally increased. The information technology sector, which accounted for 20% of the S&P 500 in 2016, reached 25% in 2020 and is now at 35%. Since growth stocks are inherently traded at high valuations, if the ratio of tech increases, the overall market figures will inevitably rise regardless of which valuation metric is used.
The real risk to be concerned about is not the "overvaluation" itself, but a scenario where tech earnings stall, or the arrival of a recession. At this point, neither of those signs is appearing in the data.
Summary—Where we stand according to the data
The Q1 2026 earnings season shows the fact that "a recession is not here, at least not yet."
Revenue for all 11 sectors exceeded expectations, operating profit margins are at an all-time high of 20%, and the revenue growth rate for the information technology sector is +28.7%—these numbers do not support the pessimists.
On the other hand, the K-shaped structure persists, with headwinds for software stocks, polarization among consumers, and stagnation in the housing market remaining a reality. As tech accounts for half of the market, continuing to track tech trends remains the most important theme for reading this market.
