Transcripción
Amanda Agati:
Every sixty years, the Year of the Fire Horse comes around in the Chinese Zodiac — a symbol of rare momentum and powerful inflection points. Honestly, that’s exactly what this earnings season has felt like so far – full of shifting growth drivers, evolving margin trends and a market recalibrating in real-time. Legend has it that the year of the Fire Horse brings bold moves and restless energy. It’s clear the market has embraced both of those themes already in 2026. No better metaphor and timing then to talk earnings, in the February edition of Adding Alpha!
So far, only about one-third of S&P 500 companies have reported earnings, but the tone has been clear: economic and earnings momentum continue to outpace expectations.
Q4 earnings growth estimates were revised higher by about 112 basis points in total – a very unusual but similar dynamic to what played out during Q3, when revisions also moved higher, but only by 69 bps. This is unique in that it’s far more common for revisions to be negative, but now, we’ve had two consecutive quarters of positive revisions, reaffirming our positive outlook.
The Q4 blended growth rate is currently tracking around 8% year over year, with 7 out of 11 sectors expected to contribute. Even topline revenue is solid at approximately 7.8% – some signs of breadth expanding out there!
Margins are another bright spot. The Q3 corporate profit margin of 14.1% is now above the all-time high reached in 2021, even with inflation still stubbornly above the Fed’s 2% target. Companies still have pricing power and that’s showing up in earnings upside surprises.
That said, we also need to keep perspective. The Mag 7 are still doing an outsized amount of heavy lifting. If you strip those seven companies out of the equation, it cuts the growth rate in half to about 4% - still a striking divergence in terms of the overall growth story.
The good news is the market narrative is beginning to evolve in 2026. Consensus is calling for about 15% earnings growth in 2026 and excluding the Mag 7 only shaves off 200 basis points. Should expectations come to fruition, that would be a vastly different dynamic than what we’ve lived through over the last couple of years.
Volatility also remains impressively serene. The VIX is running about 3 points below its 5‑year average and the MOVE Index is at its lowest level since 2021. Yes — the purple haze of policy uncertainty, as well as the 2026 midterms, may introduce a decent amount of noise, but historically, those market gyrations tend to be short‑lived when the earnings backdrop is this strong.
Across sectors, the leadership trends are clear. Growth stocks are still expected to be favored.
However, historically value-leaning sectors like Energy, Industrials and Financials are much more correlated with the path of U.S. GDP growth, which is tracking at a solid 2+% for 2026.
Additionally, a manufacturing rebound later in 2026, in part, driven by the 100% bonus depreciation on tangible assets from last year’s tax bill — could be yet another potential catalyst for an expansion in market breadth.
All in, valuations remain elevated. The S&P 500's forward P/E is nearly unchanged at 21.5x at the start of 2025, versus 22.0x at the start of 2026, despite an impressive 18.5% return for the index last year.
We expect a similar scenario to play out relative to 2025, in which earnings are the primary driver of returns, not multiple expansion.
So, what does all this mean? To me, the picture is becoming clearer: momentum is broadening, even if slowly. Artificial intelligence continues to be a powerful earnings catalyst – and strong guidance, especially around productivity gains and adoption, is cutting through some of the purple haze that has continued to dominate the macro narrative.
In the spirit of the year of the Fire Horse, this is a market characterized by energy, resilience and the early stages of transition, in our view. And if earnings continue this trajectory, that momentum may end up being one of the defining drivers of market performance for 2026.
