The Wall Street consensus for S&P 500 earnings growth sits at 21.8% for calendar 2026 and another 14.8% in 2027. Those look like big, tough-to-achieve numbers, but they are totally doable if we check the historic record. Going back to the early 1980s, the S&P’s annual earnings growth rate peaked 53, 76, 59, 44, 40, and 41 months after the Fed embarked on its rate cutting cycles. The year-over-year earnings growth rate at those peaks was 41%, 20%, 16%, 23%, 41% and 51%, sequentially.

In the current cycle, the Fed started cutting rates 19 months ago, in September 2024. If past is prologue, earnings growth could hit its most stretched point as far out as 2028, 2029, maybe even 2030.

We mapped out some S&P 500 scenarios using the earnings consensus to try to get a gauge for where the S&P 500 may go in 2028, based on what will then be trailing earnings for 2027. As we parse through the numbers, we take Yogi Berra to heart: “It’s tough to make predictions, especially about the future.”

Nevertheless, start with a wildly bullish outcome: the S&P in 2028 decides to trade for a P/E multiple on trailing earnings akin to what we saw in the 2021 mania. In that scenario, the market would run to 10,369 from 7,152 today.

For the bears, how about the 2022 P/E low? On 2027 earnings, the S&P would close 2028 at 6,137. The issue with that figure: if the S&P spends the better part of the next three years declining by roughly a thousand points, it would seem logical that the reason is a problem in the “E” part of P/E, whereas our thought experiment assumes the consensus nails it on earnings growth.

Here are some middling scenarios. Using the median trailing price/earnings ratio of the last two decades, and assuming the Street gets the earnings picture right in 2026 and 2027, the S&P would close 2028 at 6,624. But if we change the multiple to the median of the last 10 years, we get 7,533. How about the median since March 2020, to capture the COVID and post-COVID eras? On those valuations, the S&P would hit 8,702. Outside of the 2021 scenario, none of these figures are the stuff of raging bull markets, and some would best be described as a grinding, annoying, but not devastating quasi-bear.

Perhaps the best reason to stay the course in stocks is to figure out if inflation, labor dynamics and other primary concerns will come bite us.

There is something that could help in the near-term: the IRS reports that tax refunds are up 11.1% over last year, to $3,462. However, we are keen to note that the typical refund was in the near-$3,000 area every bit of 10-15 years ago. A few hundred extra dollars is cold comfort when we think about how much farther a dollar went in, say, 2010 or 2015.

Also, oil is clearly an issue for inflation, but money supply is thus far behaving itself. U.S. M2 money is up 4.9% year-over-year, nowhere near the 26.8% COVID peak. The Eurozone’s money supply is up 4% in the last year; that economic bloc has seen double digits in plenty of readings over the last quarter century. Also, China’s 8.5% M2 growth is below the double-digit norms of past decades. Japan’s 2.0% rise is nothing when we compare it to that country’s 9.6% high during COVID.

Finally, the stock market would love to see nothing more than the labor market holding up. Time and again, we find monetary policy having a beautiful, lagged effect in the jobless claims series. We are of the view that the cumulative 175 basis points of Fed rate cuts that hit the market in 2024 and 2025 is exactly what the labor market needs in 2026-2027. We will soon find out if manufacturing employment continued to mend in April. Last month, the ISM gauge on employment hit 48.7, just short of 50, the line of demarcation between expansion and contraction. That is more than five points higher than the prior reading, 43.4.