Earnings Preview, Market Breadth and Potentially Calming Bond Markets

Wall Street consensus estimates remain robust for both this year and next year, with earnings growth this year slated for 17.6% followed by 18.6% for next year based on operating earnings for the S&P 500.¹ Sales growth expectations sit at 10% for this year and 8% for next year.² As has been the case for the past three years, technology-related companies are expected to deliver strong earnings, as is the energy sector given elevated hydrocarbon prices and supply chain disruptions benefiting integrated and refining-focused companies.

The swing factor for this earnings season is when markets begin to shift focus to 2027 earnings and even rumblings of 2028 projections. Recognizing that we have had three successive (and very likely four) positive years for both earnings and sales, cumulative momentum plus higher base effects (read: tougher comparisons) build from an already strong base, and questions of sustainability and mean reversion emerge. Tech sector dynamics, which we will cover below, are of primary focus given not just the high sector weightings for information technology and communication services (over half the index in just two sectors), but also how many other sectors are tied to broader AI infrastructure, if only indirectly.

Because AI is still being treated as a quasi-longer-duration theme, meaning companies are still allowed to spend, we expect investors to want to hear more from AI-related companies about their forward guidance. As we will discuss later in this piece, financing must meet spending plans, and shareholders must see evidence that they will benefit from that spend. The relationship between the two is tacit and tender. Pricing decisions will also play a key role in earnings, as markets are no longer issuing hall passes to companies for higher input costs: the Iranian conflict, trade tensions unlikely to be solved post a divisive pending election, and ongoing supply chain challenges are items investors are not just looking through. In short, while optimism endures given earnings and sales expectations, investors will likely be seeking greater visibility from companies given what has already been a strong run for both top and bottom lines. 

By the end of this calendar month, 60% of the S&P 500 will have reported earnings, with over half of that amount reporting the week of October 26 alone.³ While reporting season always contains valuable information, this period will be very important.

Corporate earnings across the United States and emerging markets remain highly geared to the artificial intelligence ecosystem, and gauging trends around spending and monetization (or how companies are booking net-new business sourced by AI outlays) will be critical. In addition to already announced capital expenditure plans, several companies have tapped the bond market for additional funding, which we will cover in more detail below. Investors have firmly shifted their focus to return-on-invested-capital sustainability, or demanding more discipline from companies to balance spending with value realization. While we do not issue individual security recommendations, Microsoft remains prolific with its return-on-invested-capital focus, with CEO Satya Nadella revealing a self-created model to gauge Microsoft’s progress and noting that Excel-based agents offer continuous evaluations.⁴ How investors respond to the spend-versus-monetization dynamic will be critical.

Samsung, the world’s largest memory chipmaker, reported preliminary earnings earlier this week, highlighting that momentum remains strong within the AI ecosystem. Samsung’s operating profit guidance represents more than twice what it earned the prior calendar year.⁵ This is impressive performance given higher component costs and a sharply appreciating Korean won versus the dollar. As we have shared, the supply/demand imbalance within the AI arena remains highly skewed to demand, and our focus will remain on how companies react when supply and demand converge; in too many instances (e.g., U.S. dot-com era, European telecommunications privatization), companies have ignored demand satiation and spent money anyway, and that defiance rarely ends well. The AI outgrowth can avoid those fates, but overzealous spending can trump discipline.

The S&P 500 hit its 28^th all-time high of the year on Tuesday, and as of this writing, the index was up over 14% year to date. However, investors continue to express concerns about a still-narrow return experience under the index’s surface, with observers preferring to see more sectors demonstrating strength than what we have seen so far in 2026. Out of the 11 major sectors that comprise the S&P 500, only two sectors have generated total returns in excess of the index: energy (+46.3%) and information technology (+29.7%). Further, three sectors (financial services, consumer discretionary and utilities) are in the red for the year.

Beyond sectors, individual stock performance continues to generate concerns. The equal-weighted S&P 500, which divides each underlying index member stock into symmetrical proportions, has both underperformed the market capitalization-weighted S&P 500 and, before this week, had dropped for seven consecutive weeks.⁹ Moving averages, or the mean price of a security or index over a rolling time period, offer insights into price trends, and long-time readers are familiar with one of our favorite maxims, “in price is truth, at least for right now.” A 200-day moving average tracks prices over more than half a year, and on Tuesday, less than half of the S&P 500’s underlying stocks were above their 200-day moving average price level, let alone matching the index’s all-time highs.¹⁰ Finally, using New York Stock Exchange (NYSE) data, just a week before the S&P 500 reached all-time highs, the percentage of NYSE stocks above their 200-day moving average was a meager 38%, the lowest level we have seen since June 2025 when markets were still absorbing tariff-induced selloffs.¹¹

Equating past instances with similar properties to the present , and even worse, projecting that the past will, in fact, be portend, is one of our industry's greatest logical fallacies. While we have great respect for the learnings of prior periods, we need to recognize that the current capital market backdrop varies significantly from other points in history. As noted above, the AI ecosystem’s influence is considerable on the earnings trajectory, and the current earnings season’s tea leaves on capital expenditures and consumer activity will be important signals. AI remains an investable theme, and the current energy market tailwinds will dissipate at some point. We view calls for active management to replace passive as premature (and in many cases self-serving), and while we would prefer broadening activity to accelerate, we still favor participation in low-cost, broad-based strategies for public equity exposures.  

For context, we had used 5% for the U.S. 10-year Treasury note as a significant yield level. In addition to the 10-year instrument’s status as global finance’s cornerstone, prior to breaching that mark in mid-September, 5% proved durable on a closing basis for 19 calendar years. Since reaching 5%, yields have shot higher, peaking at 5.36% on Wednesday.

While several consequential events occurred this week, including a release of the Federal Reserve’s last committee meeting minutes, we would point to two specific events that indicate volatility may perhaps subside. First, the U.S. Treasury had successful auctions of new 10- and 30-year bonds on Wednesday and Thursday, respectively. On Wednesday, Treasury sold $39 billion of bonds but had $108 billion of demand for that issue, with what market participants call a bid-to-cover ratio of 2.8 times.¹² That ratio represents historically strong performance, and it is also worth noting that indirect bidders, who generally represent foreign buyers, purchased 80% of the issue, an all-time high.¹³ The next day, the 30-year bond auction saw a 2.5x bid-to-cover ratio, lower than the prior day’s auction but above recent trends.¹⁴ Indirect buyers were also present, bidding over 72% of the auction, again representing strong performance versus recent history.¹⁵

Second, we saw three separate companies, SpaceX, Broadcom and Oracle, all seek to raise capital this week to expand their AI interests.¹⁶ In addition to these companies, Amazon, Alphabet, Meta and Microsoft have all accessed the bond market in recent months, in some cases across currencies and durations. Two positives emerged from this week’s issuance news. First, companies still sought financing despite longer-maturity interest rates touching levels not seen in decades. Second, investor demand appears to still exist despite a glut of corporate, municipal and federal debt. Federal Reserve Chairman Kevin Warsh noted his concerns about a potential crowding-out effect in the bond market, highlighting that “the competition for capital is real” due to AI hyperscaler spend.¹⁷ As we have seen reasonable supply met with demand this week, along with some levels of resistance established since we breached the 5% yield threshold, the bond market may settle within current ranges and evaluate earnings, geopolitics and, of course, inflationary trends.

 

¹ Northern Trust Wealth Management Research, Bloomberg. Data accessed on terminal 9 October 2026.

² Ibid

³ Northern Trust Wealth Management Research, Bloomberg. Data accessed on terminal 8 October 2026.

⁴ Zafar, Ramish. “Microsoft’s CEO Nadella Says He Interrogates AI Models Rather Than Trusting Output, Redefining How Executives Use Agents.” Wccftech. September 27, 2026. https://wccftech.com/microsofts-ceo-nadella-says-he-interrogates-ai-models-rather-than-trusting-output-redefining-how-executives-use-agents/. Accessed 8 October 2026.

⁵ Samsung. “Samsung Electronics Announces Earnings Guidance for Third Quarter 2026.” Samsung Newsroom. October 8, 2026. https://news.samsung.com/global/samsung-electronics-announces-earnings-guidance-for-third-quarter-2026. Accessed 9 October 2026.

⁶ PepsiCo. “PepsiCo Reports Third-Quarter 2026 Results.” Pepsi Investor Relations. October 8, 2026. https://investors.pepsico.com/docs/pepsico-5v9wci20/media/Files/investors/q3-2026-earnings-release.pdf. Accessed 9 October 2026.

⁷ Ibid

⁸ Delta. “Delta Air Lines Announces September Quarter 2026 Financial Results.” Delta News. October 9, 2026. https://ir.delta.com/news/news-details/2026/Delta-Air-Lines-Announces-September-Quarter-2026-Financial-Results/default.aspx. Accessed 9 October 2026.

⁹ Northern Trust Wealth Management Research, Bloomberg. Accessed on Terminal 9 October 2026.

¹⁰ Ibid

¹¹ Ibid

¹² The United States Treasury. “Treasury Securities Auctions Data.” Fiscal Data. https://fiscaldata.treasury.gov/datasets/treasury-securities-auctions-data/treasury-securities-auctions-data. Accessed 9 October 2026.

¹³ Ibid

¹⁴ Ibid

¹⁵ Ibid.

¹⁶ Ehsan, Omor Ibne. “SpaceX, Broadcom and Oracle All Want Billions in AI Chip Debt at the Same Time.” 247 Wall Street. October 8, 2026. https://247wallst.com/investing/2026/10/08/spacex-broadcom-and-oracle-all-want-billions-in-ai-chip-debt-at-the-same-time/. Accessed 9 October 2026.

¹⁷ The United States Federal Reserve. “Transcript of Chairman Warsh’s Press Conference.” Federal Reserve Media Center. September 16, 2026. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20260916.pdf. Accessed 9 October 2026.