The long US stock market rally may be on the verge of a shift, with earnings growth finally starting to spread beyond the tech giants that have carried the S&P 500 for the past three years, according to Deutsche Bank’s 2026 outlook.
The bank thinks the index could hit 8,000 by the end of 2026, delivering mid-teens returns from here. That call leans on a mix of improving earnings, steady investor appetite for stocks, and corporate buybacks that do not appear to be slowing down.
A “two-speed” bull market
The S&P 500 has risen at a brisk 22.7% annual rate since 2021, but the gains have been lopsided, Deutsche Bank noted. Mega-cap growth and technology companies have delivered booming earnings and rising share prices while much of the rest of corporate America has struggled through a slump that mirrors a manufacturing sector mired in what Deutsche Bank characterizes as a “severe recession on a duration-weighted basis.”
That concentration has fed concerns that tech investment is overheating or that valuations have entered bubble territory. The firm disagrees: capex by big tech companies, it says, is elevated but still tracking within historical trend channels and remains below the share of profits spent in the late 1990s, leaving “plenty of room to run.”
Signs of broadening
The third quarter offered the clearest sign yet that the market’s gains are spreading beyond the biggest tech names. S&P 500 earnings jumped 14%, with about two-thirds of that growth coming from companies outside the mega-cap tech giants.
The average company saw 11% growth, its best in two years, and six sectors posted positive earnings compared with just two in the previous quarter. Overall, nearly two-thirds of earnings came from companies growing by double digits.
Abroad, earnings grew 7.8%, the fastest pace in three years. Yet consensus forecasts still expect a sequential earnings dip in the fourth quarter, which Deutsche Bank believes is too gloomy. It sees Q4 earnings rising another 14% and anticipates either estimate upgrades or substantial beats once reporting season arrives.
Earnings and valuations in 2026
The bank expects S&P 500 earnings per share to reach $320 in 2026, a 14% increase following a projected 10% rise in 2025. Risks include corporate cost-cutting and a labor market that may soften before stabilizing next year.
On the policy front, Deutsche Bank expects the coming election cycle to produce “checks and balances,” including restraint on tariffs depending on court rulings.
At roughly 25 times trailing earnings, valuations remain well above long-term norms, but the bank contends the comparison is misleading without accounting for structural shifts. Higher payout ratios, lower inflation, stronger perceived trend growth, and fewer large earnings drawdowns — all persistent features of the post-GFC era — justify elevated multiples, it argues. Those dynamics could even push valuations higher.
Demand still outstripping supply
Deutsche Bank’s demand-supply model, factoring in investor positioning, capital flows, and buybacks, points to support for equity prices through 2026. Positioning, which rebounded off April lows, has since slipped back to underweight, leaving room for investors to add exposure. At the same time, equities continue to benefit from cross-asset inflows, and companies appear committed to buyback plans as profits rise.
With those forces aligned, the bank places the S&P 500 comfortably within the post-financial-crisis uptrend channel as it approaches its 8,000 target.
Sector playbook
The outlook is selective. Deutsche Bank is overweight Financials, citing underappreciated tailwinds for loan growth, deal-making and regulatory standards. It is also overweight Industrials, which it says stand to benefit from secular demand and a potential cyclical lift, and Healthcare, where post-pandemic drags and policy risks appear more than priced in.
The bank maintains a neutral stance on mega-cap growth and tech, noting that while long-term trends remain intact, recent outperformance has run ahead of fundamentals. It is also neutral on Energy, Materials, Consumer Cyclicals and Utilities, each for distinct reasons ranging from oil prices near fair value to the need for a clearer cyclical upswing or dollar decline.
On the defensive side, Deutsche Bank is underweight REITs, Telecom, Consumer Staples and Restaurants, pointing to bond-like risk profiles, margin pressures and concerns that product prices remain too high relative to costs.
The bottom line
If 2023–2025 were defined by a narrow set of winners, Deutsche Bank believes 2026 could be the year the rest of the market picks up speed. For investors worried that the bull market has become too top-heavy, the bank’s message is clear: the foundation may be broader than it looks.