Earnings Season: Positioning vs. Profits

Some commentators have gone so far as to describe the earnings season now drawing to a close as a demanding one. And with good reason: with earnings per share (EPS) growth expectations of 12% in Europe and 22% in the United States, respectively, the bar was set particularly high. Yet companies rose to the occasion, delivering positive surprise rates above historical averages despite investors’ elevated expectations. However, this wave of earnings growth has translated into mixed stock-market performance, which may be explained by the activity of systematic strategies (CTAs*), funds under pressure (notably Situational Awareness), and leveraged ETFs. With equity markets caught between profits and positioning, a post-summer review seems warranted.

Despite the high level of expectations, nearly 90% of US companies reported quarterly results above consensus, enabling the S&P 500 to post average EPS growth of +33% versus Q2 2025, or +28% excluding the oil sector. Alongside energy, technology was another major contributor to earnings growth, but the most notable feature was the broadening of the growth base, with seven of the ten major sectors recording double-digit growth.

For once, Europe has held its own, posting EPS growth of +22% (+12% excluding energy), supported by a 65% positive surprise rate. As in the United States, the growth base has broadened, with seven sectors also delivering double-digit EPS growth over the quarter. Further evidence of the strength of European companies is that median earnings growth is converging on both sides of the Atlantic (+13% versus +12%).

Beyond oil companies, the other major contributor to European earnings remains the banking sector, where more than 80% of companies reported positive surprises. Strong loan growth, higher net interest income and cost discipline explain this performance. It is worth remembering that this serial outperformer has fared far better on the stock market than the Magnificent Seven since 2022, while recent tensions at the long end of yield curves continue to work in banks’ favour.

The technology sector was once again a major source of positive surprises in both regions, particularly in the United States, where the surprise rate exceeded 90%, helped in part by the revaluation of stakes in privately held companies. But the real story lies elsewhere, following yet another increase in capital expenditure by the hyperscalers**—to $790 billion this year—which pushed Google’s free cash flow into negative territory for the quarter for the first time since its IPO, at -$5.9 billion.

More broadly, consensus expectations point to free cash flow for this small group of companies bottoming out in 2027, while the expansion of their balance sheets is resulting in wider credit spreads for their debt issuers. Investors, well aware of this situation, rewarded only those companies able to provide tangible evidence of accelerating cloud revenue growth—namely Microsoft and Amazon.

Given the stakes surrounding AI, it comes as no surprise that a majority of S&P 500 companies mentioned the topic during their earnings presentations (65%). It is worth noting, however, that only 2% quantified its impact on earnings through improved productivity. In Europe, resilient demand has been the dominant theme in earnings calls, alongside improving margins. These factors have prompted many companies to raise their growth outlooks at a pace not seen since 2022 in Europe and 2021 in the United States.

These stronger microeconomic prospects are naturally leading financial analysts to revise their earnings growth forecasts higher for the major indices, with expectations now standing at +19% for Europe and +33% for the United States. As has been the case for several years, technology in the broad sense—Information Technology and Communication Services—accounts for a dominant share of US EPS growth, at around two-thirds, and largely explains the gap with Europe, whose sector mix is more diversified.

Despite a positive surprise rate rarely seen in the United States, the share-price reaction of companies that beat expectations was significantly more muted on the day of publication than the historical median. This should be viewed in conjunction with the global underperformance of the Momentum style over the summer. The unwinding of the most speculative positions offers a plausible explanation for this “buy the rumour, sell the news” type of behaviour, helping the equal-weighted S&P 500 outperform the S&P 500*** by 350 basis points this year.

This early stage of normalisation should allow investors to shift their attention away from technical factors and refocus on fundamentals—namely earnings trajectories and cash-flow generation. These should once again become key determinants in offsetting the impact of rising real interest rates on equity-market valuation multiples…

* CTA: Commodity Trading Advisor.

** Hyperscalers: Alphabet, Amazon, Google, Meta and Microsoft.

*** Capitalisation-weighted.

Pierre Pincemaille, General Secretary of Investment at DNCA. This article was finalised in August 28th, 2026.

This promotional document is a simplified presentation and does not constitute a subscription offer or an investment recommendation. No part of this document may be reproduced, published or distributed without prior approval from the investment management company.

DNCA Investments is a trademark held by DNCA Finance