Deutsche Bank Raises S&P 500 Earnings to $358 - And the Data Backs It Up

To investors,

Deutsche Bank raised its S&P 500 earnings forecast to $358 for 2026. That's up from $342 just weeks ago. The 2027 estimate jumped to $420. The move came Monday as Q2 earnings season continued with a record 87% beat rate and a 7% aggregate beat.

Most people think earnings seasons follow a script. Companies beat at the start, estimates get cut, and the market grinds lower. That is not what is happening.

Here are the numbers that matter:

• Q2 earnings growth accelerated from 25% in Q1 to 33%, well above the 26% consensus coming into the season. This is one of the highest growth rates outside of post-recession recoveries.
• All 11 sectors are on track for positive earnings growth. Eight are in double digits.
• Megacap tech's contribution to S&P 500 earnings growth fell from 90% a year ago to 57%. AI beneficiaries and the rest of the market are almost even.
• Analysts are upgrading forward earnings for the second half of 2026 and 2027. That is the unusual part. At this stage of an earnings season, estimates normally get cut.

The index closed Friday at 7,489. The forward P/E sits at 20.9x.

This is the narrative violation. The story going in was that the market was a narrow rally - concentrated in megacap tech, running on AI hype, with valuations stretched and earnings about to disappoint. The data says something different. Earnings are broadening, accelerating, and the multiple is compressing.

Stocks are getting cheaper as they go higher. That is the line that always draws the eye rolls. It is also the math. If prices rise 15% and earnings rise 29%, the P/E falls. You are getting more earnings for every dollar of index price. The valuation risk that bears point to is shrinking, not growing.

There is a catch on the margin headline, and it's worth separating.

The S&P 500's blended net profit margin is on track to hit 15.7% in Q2 - a record since FactSet began tracking in 2009. That number sounds euphoric. The problem is Alphabet. Alphabet posted a 93.6% margin this quarter, inflated by unrealized gains on its SpaceX stake. Remove those gains, and Alphabet's margin drops to 29%. Remove Alphabet from the index entirely, and the blended margin falls to 14.4%.

The headline 15.7% number is misleading. The adjusted 14.4% number is still one of the highest in the series. It is also the 10th consecutive quarterly increase. The margin expansion story is real, just not as cartoonish as the headline.

Ten of the largest companies now generate roughly 34% of all S&P 500 profits - about double their share from the mid-1990s. Concentration is still elevated. But the direction of travel matters more than the snapshot. Megacap's share of growth contribution was 90% a year ago. It's 57% now. The base is widening.

The bears have an argument. They say AI capex is an overbuilt investment cycle. They say record margins can't last. They say consumer weakness will eventually drag on revenue.

These are real questions. Margin compression is normal over time. Consumer spending is the top 10% doing more of the heavy lifting, and that dynamic can't accelerate forever. If AI infrastructure spending peaks before the productivity payoff arrives, there's a gap.

But none of these concerns match what the earnings data is showing right now. Earnings growth accelerated, not decelerated. Sales growth is at a 25-year high. The beat rate is a record. All 11 sectors are positive. Analysts are raising estimates, not cutting them.

When the data contradicts the popular narrative, that is where you pay attention. The consensus was that Q2 would be the quarter the bubble shows. It was the quarter earnings got broader and faster.

The forward P/E of 20.9x is not cheap. It's fair for roughly 28% earnings growth with analysts still upgrading. If Deutsche Bank's 2027 estimate of $420 holds and the index stays near current levels, the forward multiple would fall to roughly 17.8x. That is not a discount. It is the market being rewarded for executing.

The 5 Forces of Abundance are all in play. Intelligence is growing through AI adoption. Earnings are expanding at a 25-year sales pace. Dollars are flowing into equities rather than fleeing. Risk-taking is elevated but justified by the earnings data. Time favors the side where profits compound faster than valuations expand.

What would change this view? If Q3 estimates start getting cut broadly. If the beat rate collapses below 60%. If margins reverse the 10-quarter uptrend and fall two straight quarters. If megacap's share of growth re-centers above 80% and the rest of the market turns negative.

None of that is happening.

The earnings machine is not sputtering. It's accelerating. And the market is getting cheaper as it goes higher.

Pick your poison.