3Q Reporting Season Update
The reporting season is in full swing, with earnings remaining strong and AI capital expenditures surging.
Despite rising risks and rich valuations, the income statement remains resilient. Two key messages emerge from the reporting season so far:
- Weak earnings are a primary risk, as markets tend to increase when forward profits rise.
- Earnings look promising, with 2025 numbers holding up and 2026 estimates ticking higher again after an earlier decline.
Q3 estimates are being revised upwards, and Q4 estimates are holding firm. Notable performers include financials, driven by booming trading, capital markets, and decent wealth and insurance results.
However, energy, communication services (excluding mega caps), and healthcare are lagging behind.
As Jamie Dimon warned, "where there is one cockroach, there are often more," indicating potential risks ahead.
Author's summary: Earnings stay strong despite rising risks.