Fundamentals favor the US

As Q4 reports conclude the 2025 earnings season, markets face a key test: sustaining profit growth amid elevated valuations. Looking ahead to 2026, fundamentals regain focus, positioning the US to attract capital as investors prioritize sustainable earnings.

Although the US underperformed other major regional indices in 2025, the quality of its return profile remained strong. The accompanying chart decomposes returns across key markets, highlighting the roles of valuation expansion, EPS growth, dividends, and currency effects. Notably, the US stands out as the only region where earnings growth, rather than multiple expansion or FX, accounted for the majority of total return. This reflects a fundamentally supported market in which corporate performance is being driven by genuine profit growth.

Weekly highlights

Source: FactSet, as of January 21, 2026

The next leg of the earnings cycle: Signals from 2026 revisions and 2025 results

In 2025, US large-cap equities posted strong results, with the first three quarters delivering double‑digit earnings growth and full‑year EPS expected to rise about 12% YoY. The S&P 500 gained 17% for the year while valuations were steady, with the forward P/E edging up slightly from 21.4x to 22x.

Estimates for 2026 remain similarly optimistic, with earnings expected to grow about 14%. At this stage, most major regions are projecting healthy profit expansion heading into the new year, and growth expectations continue to trend higher for indices such as the S&P 500 and MSCI EM. The chart below illustrates how 2026 EPS growth estimates have evolved over the past year.

Thus far, the strongest earnings revisions have come from Emerging Markets and US Large Cap. Within EM, sectors such as Materials and especially Information Technology have received significant upward estimate revisions, lifting overall expectations for the index. As highlighted in our Global Market Outlook, countries including India, Saudi Arabia and the UAE are investing heavily in AI infrastructure and digital transformation, positioning them to capture future efficiency gains and improve long‑term competitiveness.

Similarly in the US, upward US earnings revisions for 2026 have been bolstered by improving expectations for IT, along with Communication Services, and Financials. While earnings strength broadened over the course of 2025, market leadership remained relatively concentrated, with mega‑cap technology and communication services companies continuing to account for an outsized share of returns. The balance between narrow leadership and gradually improving breadth will be an important dynamic to watch in 2026.

Q4 earnings are the final piece needed to complete the 2025 earnings picture. So far, most major banks have reported, with US large cap banks (as defined by the banking industry within the S&P 500) posting Q4 earnings growth of 4.8% and tracking toward full‑year 2025 growth of roughly 12.5%. While results remain positive, uncertainty surrounding the regulatory environment has added some tension. Even so, underlying trends are constructive, with firms reporting rising investment banking fees, strong trading revenue and guidance that points to continued loan and deposit growth in the year ahead.

Banks serve as an important barometer for the broader corporate profit environment because improving results, when driven by fundamentals, often signal underlying economic resilience that can support earnings across several sectors.

A large wave of additional Q4 reports will arrive in the coming weeks, and as we close out the 2025 reporting season, the sustainability of earnings growth will be critical for further market progress, especially with valuation multiples at elevated levels. More broadly, we believe that 2026 marks a shift back toward fundamentals after a year defined by global capital push‑and‑pull. With many international markets now looking increasingly rich, we see room for flows to return to the US on the back of superior fundamentals. This remains a central pillar of our US preference: as markets refocus on future earnings growth, the US stands well‑positioned to attract capital again.