From the studio

Video: The AI Show: Our tech outlook for 2026 (4 mins)

Thought of the day

US stocks fell for a second day on Wednesday as mixed bank results and cautious sentiment weighed on markets at the start of the fourth-quarter earnings season. The S&P 500 fell 0.5% and the tech-heavy Nasdaq slid 1%.

But we expect another solid US earnings season, driven by resilient economic growth and ongoing AI advances. We forecast S&P 500 earnings per share to grow 12% for 4Q25, with growth expected to broaden beyond the big tech companies—an encouraging sign for further equity gains.

Resilient economic growth in the 4Q should support corporate profits. US retail sales in November (+0.6% month over month) came in above market expectations with broad-based growth across sectors, and holiday season spending has been generally robust. Despite concerns about a cooling labor market, unemployment and layoffs remain at historically low levels, and real wages are rising. The Atlanta Federal Reserve’s GDPNow growth estimate for the fourth quarter of 2025 is now above 5%, underscoring the economy’s resilience during the reporting period.

An improving economic outlook for 2026 adds further support. Our positive outlook for the equity market is also underpinned by fiscal stimulus measures from the One Big Beautiful Bill Act (OBBBA) that will come into play in the first half of this year, providing an additional growth boost. The ongoing and lagged effects of Fed rate cuts, continued AI adoption, and the easing of tariff headwinds should all be positive for GDP growth. We expect the US economy to expand by over 2% this year, which should sustain earnings momentum.

AI remains a key driver, with investor focus shifting to monetization. We maintain our conviction in the structural trend of AI, and believe that innovation will remain key in long-term equity performance. We also note that investors are now more attuned to a path toward monetization following several years of strong investment spending. With cloud service provider revenue growth likely to accelerate further during the quarter, we believe large tech companies will remain a key driver of S&P 500 profit growth for the three-month period. Companies able to demonstrate tangible revenues and profit gains from AI investments are also likely be rewarded by investors.

Overall, we believe this earnings season will give investors confidence in the durability of earnings growth, which is a key driver for market returns over the next 12 months. We maintain our S&P 500 year-end target at 7,700 and recommend underallocated investors add exposure to our preferred areas.