• The latest US ‘earnings season’ has taken expectations for future equity market earnings to a record high. However, investors are sharply discriminating between sectors.
• Our research points to a broadening of equity market leadership, but with artificial intelligence (AI) still a major driver of the outlook for corporate earnings.
• We believe emerging markets offer a more diversified way to access this growth through a broad range of countries, sectors and companies.

We’re coming to the end of the earnings season, the period where listed companies report their results for the previous financial quarter (in this case, the final quarter of 2025) and update investors on their outlook for the period ahead. For market analysts, it’s a time to judge whether corporate profits and revenues are beating or missing their expectations. 

In this earnings season, investors appear to be more focused on companies’ guidance for the period ahead than on their reported earnings. Good results alone are no longer enough to surprise or impress investors.

The market has been reacting far more aggressively to guidance surprises – both positive and negative – than to actual earnings outcomes.

At the time of writing, about 80% of companies have exceeded analyst earnings expectations for the fourth quarter of 2025. However, while this sounds impressive, in an environment of very high expectations, it has still created pockets of disappointment.

Going into earnings season, the ultra-large leaders of the US equity market formed the focal point for these high expectations. Analysts expected these US technology giants to deliver over 20% year‑on‑year growth in their earnings figures, measured by earnings per share (EPS). As the season unfolded, while these stellar expectations were generally met, their guidance for future growth – and mammoth capital expenditures – didn’t consistently impress investors. 

Past performance should not be taken as a guide to future performance. 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. You should continue to hold cash for your short-term needs. This article should not be taken as advice.

Beyond the dominant US market giants, expectations for other US company earnings were less optimistic. At the beginning of reporting season, earnings for the rest of the S&P 500 were predicted to rise by just 3% year-over-year. Combining all companies in the S&P 500, earnings were expected to grow by around 8%. Following better than expected results, as we write, this expectation for year-over-year EPS growth from the S&P 500 Index has risen to 12%.

In the US information technology and communications sectors, over 90% of companies have beaten EPS expectations. But within technology, investors are becoming more selective, and a divergence has opened between software companies and semiconductor companies. Software firms have faced negative market reactions to their earnings reports, driven by concerns that AI could disrupt their established positions.

Semiconductors, by contrast, have largely impressed investors. The backdrop remains supportive for memory‑chip makers and related semiconductor equipment manufacturers, with heavy investment in AI data centres driving robust demand, set against relatively tight supply.

While technology and communication sectors are amongst the strongest contributors to earnings growth, other sectors are also quietly improving. Results from sectors such as industrials and financials suggest that earnings strength is no longer confined to a small group of ultra-large companies.

Despite the nuanced market reactions, it’s important to underline that overall earnings expectations for the future have risen, not fallen. The ‘forward earnings’ of the S&P 500 rose to another record high at the end of January.

Companies are reaping the benefits of a strong economic backdrop. Higher expected future earnings are typically closely linked to higher future equity returns. This is a favourable indicator for the economy, and for a broadening of equity market strength. 

Besides broadening across different market sectors, global earnings are also broadening out geographically.

Nowhere is this more apparent than in emerging markets (EM). Predictions for earnings growth in 2026 are stronger in EM than in any other major region, ahead of the US, Europe, the UK and Japan. 

Unlike the US, corporate earnings in EM are less concentrated in software. Instead, in economies such as South Korea and Taiwan, semiconductors and hardware supply chains are benefiting from the AI capex wave.

Meanwhile, the commodities sector in select South American economies is enjoying positive earnings momentum. Turning away from international supply chains, domestic demand-led recovery is appearing in India and parts of Latin America. The financial sector is also delivering attractive earnings in India and Indonesia.

It’s our view that AI is still a major global earnings engine, but EM offers a more diversified way to access this growth through a broad range of countries, sectors and companies. 

Taken altogether, the current earnings environment remains supportive of our current pro-risk view of investment markets, following the signals from our Anchor & Cycle process. It supports our overweight position in equities, especially in EM.