The S&P 500 remains up 11.4% year-to-date despite recent turbulence, though analysts continue to advise caution. According to reports from Investing.com India, the market has experienced significant volatility since mid-September, with AI-related stocks falling sharply. The S&P 500 Energy and Health Care sectors led recent gains with 1.5% each, while Communication Services fell 6.2% and Industrials dropped 1.9%. Only 37.8% of S&P 500 companies are outperforming the index on a year-over-year basis, indicating weak market breadth.
S&P 500 forward earnings per share reached a record $414.41 during the week of October 22, converging on the analysts' 2027 consensus estimate of $424.56, up from this year's estimate of $365.94. As reported by Investing.com India, the 2026 consensus is closing in on the $375 per-share forecast, while the 2028 consensus already stands at $493.32, well above the $450 forecast for that year. However, The Economic Times analysis reveals that this growth is narrowly concentrated in AI-linked companies and sectors benefiting from the Iran war, with energy industry net income expected to soar about 135% in Q3, aerospace and defense profits jumping 50%, and materials sector earnings projected to increase 39%. The 'everything else' category of adjusted S&P 500 earnings is expected to have grown just 4.5% last quarter, barely outstripping the 3.7% pace of inflation.
The war-driven earnings boom is creating significant headwinds for consumer-facing sectors. According to The Economic Times, the S&P 500 consumer discretionary sector is expected to see just 1.8% growth this quarter, while consumer staples probably grew about 1.3%. Real estate remained essentially flat, and health care earnings remain in contraction. The National Association of Home Builders/Wells Fargo gauge of housing market conditions fell to the lowest since June 2012, with rate-sensitive sectors including housing and autos expected to deteriorate further if inflation doesn't abate soon. Inflation has outstripped growth in hourly earnings for the past six months, leaving lower-income consumers to rack up credit card debt or cut into savings to finance their spending.
Despite consumer challenges, the AI boom continues to provide market support. Analysts expect net income for the S&P 500 information technology sector to grow 67% this quarter, bringing index-wide earnings growth to 26%. The AI boom has contributed to an increase of about $52 trillion in household net worth since the end of 2022, when ChatGPT was released, potentially cushioning consumption. However, The Economic Times warns that fixed-income investors are suddenly demanding much higher yields on debt from riskier AI-related issuers, including CoreWeave Inc., with billionaire Ken Griffin joining Bridgewater founder Ray Dalio in suggesting that the market may be in a bubble. The analysis notes that so much of the economy and market now rest on the ability of a few hyperscalers to prove AI is profitable and worth further investments in more chips and infrastructure.
