Barbara Doran on 2026 Earnings Estimates, Market Support, and International Diversification

Market Support from Mega-Cap Stocks

• 💡 The biggest support for the market in 2025 is expected to come from "mag seven" names, rather than the Federal Reserve, unless the labor market significantly declines.
• 🚀 Despite recent pullbacks and periods of consolidation, these large-cap stocks continue to demonstrate solid earnings growth and revenue stories.
• 📈 Their price-to-earnings (P/E) ratios are now cheaper than at the start of the year, making them attractive to investors who consistently return to them for growth.
• 📊 The top seven names constitute 30% of the S&P 500 by composition and over 40% of its profits, meaning their performance is crucial for the index's overall health.

Volatility and Growth Stock Dynamics

• ⚠️ Growth stocks, particularly in the tech sector, are prone to periodic frights and volatility, as seen over the past year.
• 🧠 Companies like Amazon and Meta have historically shown a pattern of reinvesting heavily in their businesses, sometimes leading to temporary dips in profitability or stock price, but ultimately resulting in increased productivity and business growth.
• 📈 Investors must be prepared to live with this volatility when investing in growth-oriented companies.

International Market Performance and Diversification

• 🌍 While domestic indices have performed well, heavily dependent on large stocks, international markets (both developed and emerging) have often outperformed.
• 💰 Diversification into overseas markets is recommended, with Europe benefiting from fiscal stimulus due to defense spending, a trend expected to continue.
• 📉 Emerging markets are showing better earnings growth than domestic markets, and factors like a depreciating dollar (down nearly 10% last year) can further enhance their appeal.
• 🌏 There is a trend of countries and investors diversifying away from U.S. markets to spread risk and capture growth opportunities elsewhere.