Earnings Are Strong, but the Market Is Becoming More Selective
The latest earnings season is sending an important message: corporate profitability remains remarkably resilient despite geopolitical and macroeconomic uncertainty.
1. Earnings growth is broadening beyond tech.
In Italy, aggregate FTSE MIB profits increased 19% to €37.3 billion in the first half of the year, with 65% of companies beating expectations. In the US, roughly 85–92% of reporting companies have exceeded forecasts. More importantly, earnings growth is spreading beyond AI and technology. Eight of eleven US sectors are now delivering double-digit growth.
2. AI remains powerful, but investors want returns.
Alphabet illustrates the new market mindset. Revenue grew around 24%, supported by strong cloud and AI demand, but massive spending on GPUs, servers, energy and data centers is putting cash generation under greater scrutiny. The next phase of the AI trade will increasingly be about free cash flow and return on invested capital, not simply revenue growth.
3. Oil is the main macro risk to watch.
Brent has returned to around $87, as disruptions around Hormuz continue. Persistently expensive energy could revive inflation, pressure corporate margins and reduce central banks’ room to cut rates. This is probably the key macro variable I am watching right now.
4. European banks could have another catalyst.
Brussels is considering simpler capital rules, fewer constraints on cross-border consolidation and a more proportionate application of Basel III+. This could support profitability, encourage M&A and potentially justify higher valuations for European financials.
My takeaway: I remain constructive on equities, but increasingly selective. Earnings momentum continues to support the market, and importantly the strength is becoming broader. At the same time, AI monetization, energy prices and the path of interest rates will likely determine where the next opportunities emerge.
For now, I prefer companies with strong earnings visibility, solid cash generation and the ability to protect margins in a more volatile environment.... Show More
Not investment advice. The author may have financial interests in the mentioned instruments.
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