AOM Raising the Earnings Bar

Raising the Earnings Bar U.S. equities have delivered strong returns this year, with the S&P 500 up roughly 13% through July 31, 2026. These gains may raise concerns that the market has moved too far, too fast, but we believe corporate fundamentals tell a more encouraging story because earnings have grown even faster than the market. Are corporate earnings strong enough to continue supporting equities?

Change in S&P 500 Calendar Year Earnings Estimates 15% Average Last 3 Years 2026

-5% December January February March April May June July Source: FactSet and S&P Global Inc. as of 7/31/26. Data reflects growth in Next 12-Month consensus EPS estimates.

• Historically, Wall Street analysts begin the year optimistic on company earnings, and their estimates drift lower as the year progresses. By the end of July, when the majority of S&P 500 companies have reported second quarter earnings, calendar year estimates have typically fallen by ~3%. This year, the reverse has happened. Earnings estimates for 2026 have risen 15% since the start of the year, as shown in the chart above. Companies continue to clear a rising earnings bar, prompting analysts to raise their full-year estimates, with S&P 500 earnings now on pace to grow roughly 25%.1 According to our research, this would be one of the strongest years of non-recessionary earnings growth in several decades.2 We believe the AI buildout has been an important contributor, turning spending on data centers, chips, and power into revenue for the companies supplying them. • We believe the strength in earnings places this year’s market performance in a favorable context. Earnings expectations have risen faster than stock prices, which has pushed the index’s forward price- to-earnings (P/E) multiple from 22.0x at the beginning of the year to 19.6x as of July 31, 2026, even as the market has advanced. Evaluating market performance without considering the growth in underlying earnings can provide an incomplete view of valuation (see also The Platform Illusion). • We believe this is the mark of a durable market advance, one powered by earnings rather than sentiment, just as we saw in 2025. While the S&P 500 trades around 19.6x forward earnings, above its 20-year historical average, net profit margins sit at a record 16.4%.3 The historical relationship between the two variables suggests that the P/E should be closer to 23.0x, all else equal (see also Paying Up for Profitability).4 By these measures, we believe the market remains reasonably priced, supported by the rising profits that have historically carried stocks higher.

1 FactSet and S&P Global Inc. Based on consensus estimates as of 7/31/26. 2 FactSet, S&P Global Inc. and Alger from 7/31/96 through 7/31/26. 3 FactSet and S&P Global Inc. as of 7/31/26. 4 FactSet and S&P Global Inc. S&P 500 P/E as of 7/31/26. S&P 500 forward price-to-earnings (P/E) multiples were regressed against net profit margins over the past 20

years to estimate the P/E level historically associated with a given level of profitability. Based on this analysis, a net profit margin of 16.4% would imply a forward P/E of approximately 23.5x. Regression analysis is a statistical technique used to estimate the relationship between two variables.

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of August 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are…