Investor’s Guild

The siren song, valuations and skepticism

Thursday, August 13, 2026 byStephanie Guild, CFA and Maddie Mahoney Steph is Chief Investment Officer. Maddie is an investment strategist. Both are Wall Street alums.

Watching the new Odyssey adaptation reminded me of how many good quotes and lessons live inside Greek stories. Like when the Calypso tells Odysseus he must let go of trying to control everything to get home. And when Odysseus tells his son: "The clearest view of a man is from below,” he’s sharing how true character is revealed when people expect nothing from you. 

And then there were the Sirens. Their song promises something irresistible, but he knows it also teaches you a lesson. So he stuffs his crew's ears with wax and has them tie him to a mast. He wants the information, but not to act on it blindly.

This year’s market has been a siren’s song too. For those that listen for information have done well. And for those, like the crew of the ship, that have been watching but not listening to the details of the notes in earnings growth, have remained skeptics.

Since December, analysts have gotten a lot more optimistic about how fast S&P 500 and Nasdaq companies will grow earnings in 2026. Growth estimates have doubled from 12% to over 30% for the S&P 500 and 26% to 54% for the Nasdaq. That's as bullish a revision as you'll see outside of a recession recovery and a seductive song.

Normally, when the outlook brightens like that, investors pay up for it and multiples expand. Instead though, the S&P's forward P/E (what investors pay today for a dollar of the next 12 months' expected earnings) fell from roughly 23x to 20x today, over the same stretch. The Nasdaq's fell even harder, from nearly 29x to about 23x. Growth estimates went up while what people are willing to pay for that growth went down.

Yes, it could be related to rates going higher. 

But I think it also reflects the dichotomy of market participants. The long-only institutional side is more skeptical than other factions like you, the everyday investor.

A few things are probably behind that instinct:

• The CapEx we are seeing today is massive and, thus, free cash flow has dwindled. Traditionally, free cash flow is the thing to look at to know the health of a company. Most investors, no matter who they are, have never been in a CapEx cycle this massive. Even in the late 1990s, comparatively.

• Circular financing keeps showing up. Knowing who owes what to whom has become more complex. And some tech companies, like Nvidia, are becoming banks too. This is a paradigm unfamiliar to most.
• The S&P's 2027 growth estimate has actually crept down (16.5% to 12.7%) even as 2026 estimates spiked, which may mean the market thinks 2026 is closer to a peak than a new normal.
• There's a whole rate, regulation-like tariffs, and slowing-consumer risk sitting underneath all of it that some investors don't want to ignore.

But there will never not be risks.

Operating leverage tells a similar story. If a company's costs are mostly fixed, profits should grow faster than sales once net revenue kicks in, which is the “leverage” aspect, and one of the reasons people are excited about efficiency gains this cycle. But looking at trailing 12-month operating leverage, of eleven sectors, only two—Financials and Utilities—actually have profit growth outpacing sales growth at the median company. Everywhere else, including Technology, sales are still growing faster than profits, in some cases by a wide margin.

So the "AI is making everything more efficient" story and the "multiples are compressing" story are actually consistent with each other. If margins aren't expanding as fast as the growth numbers imply, it makes sense the market isn't rewarding the growth numbers at face value (yet).

None of this means the growth is fake. To me, it means it hasn't been fully earned yet. The market is listening to the song, but it's being skeptical. And that usually means there is more room to run.

Like the Sirens teach, don’t waste the premise that what you want as an investor, you may already have.