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I know, weird time to post.
But I can’t help it.
I’m writing to you from Ritholtz HQ, glued to the screens because the charts are starting to blow out and I can’t step away from the terminal.
The S&P 500 is officially in an 8.7% drawdown from the high, but here’s the interesting part: the entire decline, 100% of it, has come from multiple contraction.
That’s what today’s post is about.
Check out the chart below. I’m plotting the forward 12M EPS of the S&P 500 on the left with the S&P 500 price on the right.
The only way the S&P 500 can fall as earnings estimates rip higher is if the forward multiple is cratering.
That is exactly what is happening in the market today. A market multiple that is in freefall.
All of this is also a reminder that strong earnings don’t always mean a strong stock market.
Ben had me illustrate this concept a few months back.
Every dot on the scatter below represents a year. The X axis represents the S&P 500 annual earnings growth and the Y axis represents the S&P 500 annual return within that year.
I did my best to draw a trendline, but it’s clear there’s no statistical significance.
The dots are everywhere.
Out of all the quadrants on the chart above, I want you to focus your attention on the bottom right one: the years where earnings were up and stocks were down.
In all of these years, the rise in “E” earnings was unable to offset the fall in the “P/E” multiple. And hence, a lower market.
That’s exactly what is happening in 2026.
Here’s a chart from Exhibit A that I made for our clients.
The data is updated as of yesterday’s close, but the point still stands.
Strong earnings with multiple contraction.
That’s 2026 in a nutshell.
Have a great weekend and thank you, as always, for reading!