The stock market bull is about to face its first major test of the year. With high valuations, there is little room for error in financial reports.

So far, for global stock investors expecting to achieve stable returns for the fourth year in a row, things have been going smoothly: from Tokyo to Paris and then to New York, stock markets are rising together. However, the bulls are about to face their first key test of 2026: the earnings season is coming at a time of escalating geopolitical turmoil and uncertain economic growth prospects. With global stock market valuations already above long-term averages, earnings reports are crucial. The forward price-to-earnings ratio of the MSCI developed markets index is 20 times, higher than the 17 times median of the past 10 years. Market concerns are that after last year's 19% increase, strong earnings and sustained growth must be the support to continue the rally. In the United States, analysts expect S&P 500 index earnings to increase by over 8% in the last quarter, and earnings growth of at least 11% for each earnings period this year. Asian corporate profits are expected to jump by 14% in the fourth quarter, while European earnings are only expected to grow slightly over 1%. Neil Birrell, Chief Investment Officer at Premier Miton Investors, said, "The valuation levels at which the market currently stands leave little room for any disappointment in terms of earnings growth. If we start to see downward revisions to earnings expectations for 2026, this rally will face significant risks."