Why earnings matter more than headlines

MARKETS had every reason to stumble in the first half of 2026 – a disruption to the world’s busiest oil choke point, inflation that was stubborn, and another repricing of rate expectations.

Instead, US equities have continued to advance on the back of strong earnings.

The more remarkable story, however, lies beneath the surface. Financial-data provider FactSet said that the S&P 500 is on track to deliver second-quarter earnings growth of 24.7 per cent, the second consecutive quarter above 20 per cent.

Strong earnings alone would be notable. What makes this cycle particularly compelling is the breadth of that growth.

Towards broader participation

For much of 2024 and 2025, investors questioned whether the market had become overly dependent on a handful of artificial intelligence beneficiaries and large technology companies.

While earnings growth remained positive, leadership was concentrated and many sectors struggled to keep pace.

Today, the earnings landscape has broadened. Technology remains a powerful driver of profit growth, but it is no longer the only one.

Earnings momentum is increasingly evident in industrials, financials, materials, utilities and infrastructure-related businesses.

Markets supported by multiple sources of earnings growth tend to be more resilient, relying less on any single sector or investment theme.

The earnings trajectory continues to strengthen.

If FactSet’s second-quarter expectation of 24.7 per cent growth by S&P 500 companies is realised, this would mark seven consecutive quarters of double-digit earnings growth, a streak rarely sustained outside periods of broad-based economic expansion.

Equally notable is the breadth of the expansion. In the second quarter, 10 of the 11 S&P 500 sectors are expected to report year-on-year earnings growth.

While the seven largest technology companies are projected to grow earnings by 31.1 per cent, the remaining 493 companies are expected to post 22.8 per cent. This is evidence that earnings momentum is increasingly broad-based, rather than concentrated among a handful of market leaders.

Analysts estimate that the broadening will extend to the end of the year.

By the fourth quarter, the remaining 493 companies are projected to post earnings growth of 25.3 per cent, versus 22.8 per cent for the seven largest tech players.

Three structural developments underpin the broadening earnings cycle.

First, the AI investment cycle is expanding beyond semiconductors and cloud infrastructure.

Companies involved in electricity generation, utilities, engineering, industrial automation, robotics and cybersecurity are increasingly benefiting, as businesses prepare for the next phase of AI adoption.

Second, business investment remains resilient.

Companies continue to invest in digital infrastructure, manufacturing capacity, automation and supply chain resilience, despite higher borrowing costs. This supports demand in a broad range of industries, rather than a single sector.

Third, sectors outside traditional technology are contributing more meaningfully.

FactSet noted that the financial and industrial sectors have contributed positively through stronger earnings revisions and surprises, reflecting broader demand rather than a single catalyst.

Together, these developments indicate that corporate America is benefiting from multiple structural growth drivers, rather than relying on a single source of demand.

Improving fundamentals

Forward-looking indicators reinforce this constructive picture.

Analysts raised second-quarter earnings estimates by 3.4 per cent during the quarter.

Historically, estimates tend to fall as reporting season approaches, declining by roughly 2 to 3 per cent on average. This quarter, they moved higher instead, an encouraging signal of underlying business conditions continuing to improve.

Corporate guidance has also remained encouraging.

Around 57 per cent of companies issuing earnings guidance have provided positive outlooks, compared with a historical average of about 41 per cent.

Academic research has consistently shown that earnings revisions are among the strongest predictors of future stock performance.

Companies experiencing upward earnings revisions have historically outperformed those facing downward revisions.

This reinforces the case to focus on improving fundamentals, rather than short-term market narratives.

Beyond the obvious winners

For investors, the implication is to not rotate away from the market leaders, but instead recognise that the earnings cycle is broadening.

The largest technology companies remain among the strongest franchises in the global economy.

Today’s environment argues for a broader opportunity set.

Industrials may benefit from infrastructure spending and automation trends. Financials are seeing improvements in earnings momentum.

Utilities and energy infrastructure companies are increasingly benefiting from rising electricity demand from data centres and AI deployment.

Materials companies are positioned to benefit from continued capital expenditure and industrial activity.

As profit growth becomes more widely distributed, investors may increasingly find attractive opportunities beyond the narrow group of stocks that dominated the earlier phase of the rally.

The bottom line

Headlines often dominate short-term market sentiment. Earnings, however, remain the foundation of long-term equity returns.

The encouraging story today is that more sectors, companies and business models are contributing to the strong profits of corporate America.

If the first phase of this bull market was driven largely by a handful of AI leaders, the next phase may be powered by a broader earnings base.

This makes for a healthier foundation for markets, and a wider set of opportunities for investors.

For investors, the message is straightforward: stay diversified, focus on corporate fundamentals and long-term structural trends, and look beyond yesterday’s winners.

The next chapter of market leadership may already be taking shape.

The writer is head of investment advisory for Asia South Wealth at Citi