Are Markets Right to Ignore the Data and Focus on the Future?

If you’ve been following developments in the US equities market this year, especially the first two months, you’d be forgiven for thinking there should be a bloodbath. For starters, Trump’s tariffs are still a wrecking ball on supply chains, companies have issued cautious earnings guidance, and the broad economy is sending mixed signals.

In fact, in its 2026 market outlook report, JP Morgan put the probability of a US recession during the year at 35%. And yet Wall Street has held its ground for the most part. The NASDAQ Composite is still pricing in a scenario of explosive growth, and the S&P 500 is sitting on a forward price-to-earnings multiple of roughly 22 times, according to Goldman Sachs’s analysts.

The question then becomes, are markets being reckless or are they seeing something the data is not yet showing? We crack this nut in this week’s newsletter.

The raw numbers coming into 2026 have been anything but clean. Of the companies that issued forward earnings guidance in recent weeks, 45 cut their estimates and 52 maintained or raised them. If anything, this split tells you there is much more uncertainty than confidence.

And the damage from this uncertainty unfolded before the market’s eyes. For instance, S&P Global, the financial data giant, saw its stock plunge more than 18% last month after management’s full-year earnings guidance fell short of expectations. Management told investors to expect the full-year earnings to range between $19.40 and $19.65 per share, which undershot the $19.96 Wall Street had penciled in. That is barely a 30-cent miss and yet the market’s response was swift and brutal.

The same happened to Upbound Group. The company beat its fourth-quarter earnings estimate and still fell 2% when it guided for weaker 2026 earnings. Intel too beat its Q4 numbers and triggered a sharp sell-off the moment its Q1 forecast came in light. In each case, the market barely paused to acknowledge what had already been achieved. What it wanted to know was what came next.

Turn the coin over and the pattern becomes equally clear. When companies delivered credible growth narratives, the market rewarded them generously. This is regardless of where their most recent numbers landed.

Take, for the first example, Nvidia. The chipmaker shared its earnings on February 25 and reported $68.1 billion in quarterly (Q4) revenue, a figure that surpassed the $66 billion that Wall Street anticipated. But that is not what sent the stock surging. Instead, it was the forward guidance where Nvidia told investors to expect $78 billion in revenue in the coming quarter. This was well above the $72.6 billion analysts had forecast. The beat on the quarter mattered far less than the promise of what lies ahead.

Rolls-Royce is our second example. The British engineering company, whose jet engines power Airbus A350s and Boeing 787s, reported a 40% jump in annual profit. This growth came on the back of strong aero-engine demand and a growing data center business, said management. More important to investors, though, was the upgraded medium-term guidance and a £7 billion to £9 billion share buyback. As a result, shares shot up 9.1% and helped push the FTSE 100 to a record high.

These are only two cases and one might be drawn to think that the pattern that emerges is accidental. But the reality is that this is just the market operating exactly as it is designed to.

We shared in a previous newsletter that at the fundamental level, markets are not scoreboards for the past but engines that price the future. We even cited Leighton Vaughan Williams and colleagues who argued that equity markets aggregate the dispersed expectations of millions of participants and constantly reprice assets based on where those participants think things are heading. In that sense, a company’s data, such as the most recent quarterly earnings, is informative but not what the market is trading on.

And this explains why analysts’ forecasts for 2026 have stayed ambitious despite the mixed economic backdrop. For instance, consensus forecasts suggest S&P 500 earnings per share could increase by 15% year over year in FY2026, which is well above the long-term historical average of 8-9%, according to TIOMarkets. A large portion of that growth could come from the technology sector, where artificial-intelligence infrastructure spending continues to lift revenue at the largest companies.

As you can see, these are not backward-looking figures. They are the market telling you, in plain numbers, where it thinks corporate America is headed. And it is that destination, not last quarter’s results, that is driving prices today.

None of this forward-pricing instinct is without risk, however. And as of this writing, those risks are mounting before investors’ eyes.

Let’s start with valuations. On February 20, Bank of America’s equity strategist Savita Subramanian noted that the S&P 500 “is statistically expensive on 18 of 20 valuation metrics; four are near record highs”. And Bloomberg data puts the index at roughly 21.4 times blended forward earnings, which is well above the five-year pre-ChatGPT average of 18.7 times. So, a simple reversion to that historical average, even if every earnings forecast holds, would imply a 12-13% decline from current levels. The problem is that the market is not priced for disappointment.

Then came the Middle East. A US-led attack on Iran in late February has effectively closed the Strait of Hormuz to commercial tankers, which means close to a quarter of the world’s daily oil supply has been embargoed. The result is that oil prices have surged more than 25% since the conflict escalated, and higher oil means higher inflation. And if inflation re-accelerates, the Federal Reserve’s expected rate cuts move further out of reach. This explains why stagflation fears surfaced in analyst notes as recently as March 9.​

Markets are right to ignore the data and focus on the future, and nothing is irrational about that. In fact, this is what the market does at its core, which, put simply, means that investors price the most plausible version of tomorrow. And right now, that version involves AI-driven productivity, corporate earnings that continue to grow, and a Federal Reserve that has room to ease. This is why companies that speak confidently to that future are being rewarded and those that offer doubt, even after a decent quarter, are being made to pay for it.