3Q Reporting Season: Strong Earnings and Surging AI Capex
Earnings remain strong, and AI capital expenditures are surging, but rising risks and rich valuations are testing the markets' ability to sustain profits. Despite stretched valuations at the top end of the market, the AI investment cycle continues to drive growth.
The reporting season has yielded two key messages: earnings are surprisingly resilient, and weak Sanctuary: Number one risk. When forward profits rise, markets tend to increase, and 2025 numbers are holding up, with 2026 estimates ticking higher again after an earlier decline.
- Q3 estimates are being revised up
- Q4 estimates are holding firm
Earlier this month, pockets of pain were seen in auto insurance, and Jamie Dimon warned that
where there is one cockroach, there are often more. Despite this, financials were the largest positive contributor to growth, driven by booming trading, capital markets, and decent wealth and insurance results. Detractors include energy, communication services ex the mega caps, and healthcare.
Author's summary: Strong earnings and AI capex drive market growth despite risks.
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