By “The Globe”, written by Eurizon Asset Management.

The first third-quarter earnings reports from US companies paint a positive picture, though a less dazzling one than in previous quarters.

Results from the major banks were broadly in line with expectations. Early reports from technology companies confirm strong prospects for demand and revenue growth, but investors are now focusing on whether the heavy investment in artificial intelligence (AI) will pay off.

With 25% of S&P 500 companies having reported, 80% have beaten earnings expectations. That is slightly below last season’s rate but still well above the historical average.

Earnings estimates, revised upward over the course of the third quarter, point to robust year-over-year growth of 27%, following an exceptional 32% in the previous quarter.

Ten of the index’s eleven sectors are expected to report earnings growth, confirming that gains are gradually broadening across companies and sectors. Energy, technology, communication services, materials and industrials are expected to lead, each with double-digit growth.

In the eurozone, EuroStoxx earnings are expected to grow by a solid 22% year over year. Growth is being supported by a stronger-than-expected economic rebound and by significant upward revisions to estimates, particularly in energy, industrials and technology.

The outstanding performance of US companies in recent quarters has prompted analysts to raise their third-quarter estimates, and expectations have continued to improve since the reporting season began.

Fourth-quarter earnings are expected to grow by 28%, and full-year 2026 estimates have risen to 34.4%. The gains are driven by the technology sector, the recovery in energy, and the broader spread of growth across sectors.

Estimates for 2026 are also high in other major markets. In the eurozone, EuroStoxx earnings are expected to grow by 17.7% after stagnating in 2025. The improvement is even sharper in emerging markets, where estimates point to exceptional earnings growth of 74.6%, fueled by accelerating technological development.

Globally, earnings are expected to rise by 29.8% this year and by around 15% a year over the next two years, providing significant support for equity markets.

The second half of 2026 began with renewed geopolitical tensions in the Middle East, which drove energy prices and inflation higher. Even so, the global economy has proved resilient, and corporate earnings have continued to grow.

Inflation risks have prompted the major central banks to raise interest rates in tandem.

The combination of solid growth, persistent inflation, higher policy rates and concerns over large budget deficits triggered a sharp rise in bond yields, which had only partially reversed by early October.

Geopolitical tensions and higher yields have, however, stalled equity markets. Between June 30 and October 23, the MSCI AC World Index was flat (up 12.4% year to date). Over that period, the US posted a gain (2.0%), while the eurozone (−4.3%) and emerging markets (−9.8%) declined, the latter hurt by profit-taking in technology stocks.

The market’s reaction to quarterly results has been muted. In the United States, companies that beat expectations saw modest share-price gains, below the historical average. Investor sentiment is being driven more by the outlook for earnings growth than by quarterly results.

The US stock market has been consolidating since August, when oil prices began climbing again, while eurozone (EuroStoxx) and emerging markets have slipped below their summer highs.

Valuations (price-to-earnings ratios) peaked periodically in the first half but have since declined across all markets, thanks to strong earnings growth. For the S&P 500, they are now below their May 2025 lows.

Further upward revisions to estimates have also pushed forward valuations down significantly. For the S&P 500, expected multiples for 2027 and 2028 are now below 2022 levels. EuroStoxx multiples have fallen back below their historical averages, and in emerging markets they have even dropped below their 2020 lows.

Earnings growth, increasingly broad-based across markets and sectors, continues to provide a strong tailwind for equities. Lower valuations, meanwhile, offer more of a cushion should markets correct.

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