How are current earnings?

Surprisingly strong — and this is actually the most important context for understanding why the market is where it is.

The headline numbers

With 91% of S&P 500 companies having reported, Q1 2026 earnings growth came in at 27.7% year-over-year — well above the 13% analysts expected at the start of the quarter, and the highest growth rate since Q4 2021. FactSet

The beat rate is equally striking: companies are reporting earnings 20.7% above estimates on average, the highest surprise percentage since Q1 2021. 84% of S&P 500 companies beat expectations, above both the 5-year average of 78% and the 10-year average of 76%. FactSet

Who's driving it

The three biggest contributors to the upside were Alphabet, Amazon, and Meta Platforms — three of the "Magnificent 7." So it's not broad-based; it's concentrated at the top, which reinforces the concentration risk Niles flagged. FactSet

What's expected ahead

For the rest of 2026, analysts are projecting earnings growth of roughly 20% in Q2, 22% in Q3, and 20% in Q4 — implying full-year 2026 earnings growth of around 18.6%. FactSet

What this means for the valuation debate

This is where it gets interesting. The Q1 numbers are genuinely good — not manufactured or flattered by accounting tricks. That partially justifies the elevated PE. But three caveats matter:

First, 27.7% growth driven heavily by three mega-caps means the average S&P 500 company is doing much less work. Strip out the Mag 7 and the picture is more modest.

Second, the forward estimates of 20%+ growth for the rest of the year are now the baseline — meaning the market has already priced them in. Any disappointment is punished harder than it would be in a low-expectation environment.

Third, forward PE has already compressed from above 22x at year-end to around 20x — meaning earnings are growing into the valuation somewhat. That's actually the healthy scenario: earnings rising faster than prices, gradually making the market cheaper. If that continues, the bear case weakens. NYSE

Bottom line: Earnings right now are strong enough to give the bulls a legitimate argument. The question Niles is really asking isn't whether earnings are good today — it's whether they can stay this good once AI capital spending starts demanding returns and the macro headwinds (oil, yields) fully seep through. So far the answer has been yes. The next 2-3 quarters will be the real test.