Earnings season: From headliners to supporting acts

By Howard Sparks, Senior US Equity Specialist

• The improvement in overall corporate earnings growth expectations in the second quarter has been driven by sectors outside of technology.
• Improving US domestic economic conditions are lifting a wide range of companies, across industries including construction, transportation and capital goods. 
• We maintain an overweight position in equities, but we are underweight in US stocks. Although we expect US earnings to remain healthy in absolute terms, we see more attractive opportunities in other regions, particularly emerging markets (EM) where we maintain an overweight position

US companies have been busy reporting second-quarter earnings, when listed companies report their results for the previous financial quarter (in this case the three months to 30 June 2026). Looking purely at the headlines, the results have been encouraging. With roughly one third of S&P 500 companies having reported so far, almost 86% have beaten consensus earnings expectations.

As a result, year-on-year earnings growth forecasts for the quarter have risen to around 29%, up from pre-earnings season expectations of 23%.

Broadening of earnings strength coincides with equity markets rotation

However, a closer look at the figures reveals an interesting trend. The technology sector's year-over-year earnings growth estimate, which stood at around 65% before earnings season began (on 14 July), has barely changed. Instead, the improvement in overall earnings growth expectations has been driven by sectors outside of technology. This broadening of earnings strength has coincided with an ongoing rotation in equity markets away from technology and towards other sectors.

As highlighted in the chart below, the S&P technology sector index has fallen from its June highs, while the S&P 500 excluding the technology sector has continued to reach new highs.

The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs. This article should not be taken as advice.

Industrials is a good example of a sector that is leading the US stock market in 2026. Improving US domestic economic conditions are boosting a wide range of companies within the sector, across industries including construction, transportation and capital goods.  Better conditions in industrials are reflected in the ISM Manufacturing survey, a monthly US economic indicator that measures factory health through a survey of purchasing managers across 18 industries, which hit a four-year high this month.

Economy still growing, but at a more measured pace

Our proprietary economic growth indicator has moved from a period of economic expansion to one of slower growth momentum, signalling that growth is still improving but at a more measured pace.

Within equities, such ‘slowdown’ periods have often seen lower-volatility stocks gaining ground, while cyclicals (stocks whose business performance and share prices strongly correlate with broader economic cycles) only marginally underperform defensives (companies which tend to remain relatively stable regardless of the economic climate).

Recent market behaviour has been broadly consistent with this pattern. Weakness has been concentrated among some previous stock market leaders, particularly AI-related equities and semiconductors, while sectors such as healthcare and financials have witnessed rising share prices. 

We remain constructive, but more selective on equities

We see the results of the latest earnings season as being supportive of our current pro-risk view (for example, holding risk assets such as equities). Our view on these risks is that they are currently manageable, and we closely analyse a range of indicators as part of our robust Anchor & Cycle process, which guides our investment decisions. Economic growth and earnings remain constructive, which supports staying overweight risk assets.

We maintain an overweight position in equities, but we are underweight in US stocks. Although we expect US earnings to remain healthy in absolute terms, we see more attractive opportunities in other regions, particularly emerging markets (EM) where we maintain an overweight position. In EM we expect strong earnings and price momentum to continue as the region offers access to a confluence of AI exposure and sensitivity to macro tailwinds, at an attractive valuation.