Strong corporate earnings will be pivotal to hopes for a year-end rally in global stocks, as flare-ups in fears over inflation, bond volatility and artificial intelligence spending weigh on sentiment.
Major US banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc. kick off the third-quarter reporting season on Tuesday, and analyst expectations are running high. With European and US stocks near record levels, investors will demand strong report cards given the confluence of risks.
S&P 500 firms are estimated to post a 25% jump in profits compared with a year earlier, according to data compiled by Bloomberg Intelligence. A Citigroup Inc. model sees a larger share of US companies beating estimates this quarter than in the previous one, led by technology, healthcare and mining.
“It’s not make-or-break, but it is ‘show me’ and the rally needs a confirmation, because the bar has been raised,” said Violeta Todorova, senior research analyst at Leverage Shares. “Normally companies get to step over a lowered bar. This time they have to jump a higher one.”
The MSCI All-Country World Index has stalled since hitting a record in mid-August, even as analysts continue to raise earnings estimates. While that has made stock valuations lower than average, market participants worry that a slowdown in consumer spending will crimp broader economic growth.
Here are the key themes that investors are watching this season:
AI Momentum
Analysts expect American AI-related stocks to post a 47% surge in earnings for the third quarter, beating all sectors except energy, BI data show. The IT sector is estimated to make up a third of the S&P 500’s total profits this year.
In Asia, Taiwanese and South Korean firms are expected to drive a 66% surge in regional earnings growth on the back of AI demand, according to Bloomberg data. But with the MSCI World Information Technology Index scaling record highs after a 31% rally this year, the bar is high for further gains.
“Simply a beat and raise is no longer being rewarded because it’s to be expected,” said Dave Mazza, chief executive officer at Roundhill Financial. “This quarter the bar is beat, raise, lift the full-year guide, and demonstrate margin durability.”
Micron Technology Inc.’s results earlier this month received a tepid response from investors even as the company beat expectations and pointed to durable AI-related demand. Last week, Samsung Electronics Co. shares fell 2.4% despite a nearly nine-fold rise in quarterly operating profit.
The outlook for power grid operators and infrastructure providers is being boosted by data-center related spending from hyperscalers including Alphabet Inc., Amazon.com Inc., Microsoft Corp., Meta Platforms Inc. and Oracle Corp.
Still, the pace of fund-raising has made investors nervous amid the surge in bond yields. A measure of SpaceX’s credit risk hit a fresh high and the company’s bonds weakened in the secondary market last week.
Economic resilience has been a pillar of support for equities. Now investors are looking for evidence that a broader range of sectors sensitive to the cycle — such as consumer, industrials and banks — are contributing to profit growth.
“It will be particularly interesting to see what’s going on in these non-tech sectors as a gauge on the broader economy,” said Emma Moriarty, portfolio manager at CG Asset Management. “I wonder whether it’s almost a dual-track economy where we’ve got AI and associated services doing really well, and the rest of the economy maybe less well.”
An analysis by Morgan Stanley shows that earnings at the median Russell 3000 stock are on course to rise 14% in 2026, signaling a “strong” fundamental backdrop, strategist Michael Wilson said. He pointed to the industrials sector, where profit revisions remain robust and valuations have declined since the summer.
“We expect earnings quality, free cash flow and revisions breadth to be the key differentiators,” Wilson said.
Advantages in Europe & Asia
A Goldman Sachs basket of so-called capital-intensive stocks in Europe that carry physical assets has outperformed a gauge of capital-light sectors, which are more reliant on human or digital assets.
Dubbed as HALO, an acronym for “heavy-assets low-obsolescence,” these stocks are seen as less exposed to AI-related volatility and comprise sectors such as utilities and energy.
Europe’s advantage lies in “price, and a different kind of earnings,” said Alpesh Patel, managing partner at RootBridge Capital. “Europe’s thin tech weighting, about 10% of the Stoxx 600, is a hedge if the AI capex bill bites.”
In Asia, investors are also seeking reassurance that earnings growth can extend beyond a tech sector that has heavy influence on the AI supply chain. The MSCI Asia-Pacific Index has outperformed both the S&P 500 and Stoxx 600 this year.
Consumer Pressures
Consumer-oriented sectors have been some of the biggest laggards this year as the jump in energy prices feeds into fuel prices, while a rise in bond yields translates to higher rates for mortgages, auto loans and credit cards. That stands to hurt earnings at retailers and other domestically focused sectors.
Investors are now awaiting company commentary around whether weaker consumer demand or inflation worries are starting to feed through to broader economic growth.
Early results have been lackluster. Costco Wholesale Corp. reported better-than-expected quarterly profit but said paid memberships rose less than estimated. Swedish fast-fashion retailer Hennes & Mauritz AB shares fell as analysts said the company’s profit margins declined significantly excluding the impact of US tariff refunds.
Chinese consumer companies are also set for another difficult earnings season as subdued spending and fragile confidence dampen demand in the absence of a major stimulus package.
The key question is when investors will start repositioning for a recovery in Asian consumer stocks, said Josh Gilbert, lead Asia Pacific analyst at eToro Ltd. “The best entry points usually come when the outlook still looks grim, but with oil and rates both still moving the wrong way, that moment doesn’t feel like it has arrived.”
Bank Rally
Higher yields boosted bank shares earlier this year on expectations of wider lending margins. But as rates continue to climb, investors are becoming more concerned about credit quality, loan growth and capital markets activity.
In Europe, French fiscal worries threaten one of the region’s best-performing sectors. The Stoxx 600 banks sector dropped by about 8% over the last two weeks.
“For banks, people will be seeing if loan growth is still very strong. But in terms of portfolio construction, the marginal dollar for us will still go to the US or emerging markets,” Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan Private Bank, told Bloomberg TV.
JPMorgan turned cautious on Southeast Asian lenders last week, warning that surging long-end yields could trigger mark-to-market losses and weigh on capital markets revenue. “The surprise getting into third quarter 2026 is likely skewed negative for quite a few banks under our coverage,” analyst Harsh Wardhan Modi wrote in a note, recommending clients trim their allocations.
