By Teresa Rivas
Aesop's fable "The Tortoise and the Hare" teaches the idea that slow and steady wins the race. It's likely an unwelcome concept for investors after three years of an Energizer Bunny market, but slow gains are better than none at all.
Late 2025 brought a bevy of optimistic 2026 outlooks, predicting a fourth round of double-digit gains for the S&P 500. Yet Trivariate Research President Adam Parker argues that stocks are likely to channel their inner turtle -- perhaps a letdown from recent years, but nonetheless a less-hectic pace gets the index to 10000 by 2030.
In a Friday note, Parker writes that strategists at major firms are incentivized to be more bullish than bearish most of the time, which makes their rosy 2026 targets questionable -- along with the fact that historically, going against consensus often proves to be the right call.
The problem is that these upbeat estimates imply a very high bar for earnings growth. The average 2026 and 2027 earnings per share estimate of $313 and $345, respectively, requires both years to deliver double-digit growth. Analysts' average estimates are even higher for the tech sector, implying more than 30% EPS growth, while consensus calls for industrial sector EPS to more than double in 2026.
"Both sectors' estimates appear excessively optimistic," he notes.
High consensus numbers are also at odds with the fact that gross margins for the median top 500 company by market capitalization have stagnated over the past year to 45.9% in December, after peaking at 46.4% in February.
Unfortunately, the market in 2025 was much swifter and harsher toward companies that miss expectations than those that beat, meaning that any excessive optimism could lead to big selloffs.
The tide of history is also turning against big returns. Typically, years of stronger returns are followed by less profitable periods -- and there's scant evidence of four consecutive years of double-digit gains; the only recent such period was the late 1990s, before the dot-com bust.
All of that leads Parker to estimate that for 2026, a "below average (but perhaps still positive) return year is more probable."
His firm's below-consensus 2026 and 2027 EPS estimates are $300 and $324, respectively. He believes margin expansion will be harder to come by, without which it will be more difficult for multiples to push higher -- particularly if overly-optimistic EPS estimates are revised lower. All of that's a headwind for stocks.
From a technical perspective, Piper Sandler's Craig Johnson is similarly looking for more smaller gains ahead. He wrote in a Friday note that as "breadth and momentum indicators are only modestly bullish," leading him to reiterate his position from the start of the year that "although this is a bull market, it is a bull market with a lowercase 'b.'"
Nonetheless, Parker still thinks that patient investors will do well. A market growing 10% a year with a multiple of 21 times and a market growing 12% a year at 19 times can both get the S&P 500 to 10000 by the end of the decade, he writes, adding that neither scenario seems a stretch: Both would require the index to return roughly average results for the next five years.
That may be somewhat of a letdown after the past three years -- yet history is rife with examples of much worse outcomes.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 09, 2026 14:32 ET (19:32 GMT)
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