Q4 wrapped a solid year of U.S. company earnings. But as the numbers rolled in strong, stock markets oscillated widely. Fundamental Equities Global CIO Carrie King is optimistic as she looks ahead to 2026 and offers three observations on the prevailing dissonance.
Corporate America delivered again, with the S&P 500 Index of U.S. stocks on pace for 13% growth in earnings for Q4 2025. This would mark the fifth consecutive quarter of double-digit growth, a stretch not seen since the 2021-2022 emergence from COVID-induced economic shutdowns. Revenue growth was the highest recorded for the index since Q2 2022.
The makeup of the quarter’s results was familiar: The “magnificent” mega-cap stocks led the charge once again, with estimated earnings per share (EPS) growth of 30%. From a sector perspective, technology posted the hottest earnings growth (30%) followed by industrials (26%) and communication services (13%). At the opposite end of the spectrum, consumer discretionary, energy and healthcare showed flat to slightly negative EPS growth in the quarter.
In another familiar pattern, an impressive 80% of companies beat their EPS estimates, though market reaction was muted relative to history. And as these solid earnings rolled in, S&P 500 Index performance was largely unchanged, with some strong drawdowns countered by equally robust rebounds.
Why the disconnect between solid earnings and volatile markets? It’s nuanced, but three things keep us optimistic as we look ahead to the start of 2026 earnings:
1. Data supports strong 2026 earnings
Earnings momentum does not appear to be slowing, as indicated by four key factors:
- Analyst earnings estimates are climbing. Data from FactSet suggests another round of double-digit earnings growth in each of the four quarters of 2026, with current estimates placing growth at 14% for the year.
- Corporate sentiment is at a record high, according to a Bank of America analysis that parses positive and negative language in earnings calls.1
- AI’s impact is broadening. Earnings calls and surveys show AI-related productivity gains are touching more industries.2 This could mean further upside to margins, which are already at historic highs (13% in Q4).
- More companies are raising guidance than lowering guidance.
2. Fundamentals shine across time
History has shown that fundamentals drive stock returns over longer time horizons. Yet short-term market action can be fickle and diverge from current fundamentals.
Looking at Q4 earnings alongside year-to-date stock returns shows two notable dislocations:
- Despite reporting flat year-over-year earnings, energy is the best-performing sector so far this year, as shown in the chart below. This is in response to non-fundamental events, including recent geopolitical developments in Venezuela that could open up this large market to U.S. companies. Stocks of oilfield service and equipment companies rose in reaction. We also saw stock prices react to the cold snap across the U.S. A more than 20% uptick in natural gas prices in a matter of days boosted related stock prices. This illustrates that recent events can trigger transitory price moves that seem divorced from reported earnings.
The great divide
Top- and bottom-performing S&P 500 sectors, YTD total return and Q4 EPS growth
