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The fourth quarter 2025 earnings season has just started with US banks. What should we expect? Where are the pockets of strengths and weaknesses and what are earnings expectations for 2026?
Growth: robust and broadening
The fourth quarter 2025 earnings season has officially commenced with the major US banks, providing a first look at what is expected to be a period of robust and more evenly distributed growth. For the quarter in aggregate, S&P 500 companies are projected to grow earnings by 9% year over year. While this is strong, European equities are finally showing signs of life with 5% growth, and Emerging Markets have emerged as the standout performer with a 21% increase. This surge in Emerging Markets is primarily driven by the Asian AI supply chain, which is seeing immense demand for hardware components.
Investors are keeping a close watch on several key themes, most notably the pace of AI investment and its transition into tangible corporate adoption. There is also significant focus on the US consumer spending trend, particularly the ongoing divide between high-income resilience and low-income struggles. Additionally, the market is evaluating credit risks within the banking sector and checking whether the rotation into Industrials, Materials, and Healthcare seen throughout 2025 still has momentum.
In the United States, the 9% earnings growth estimate for the quarter appears achievable as economic activity remains supportive of both sales volumes and pricing. This projection is actually somewhat conservative when compared to the full-year 2025 growth rate of 12%. Because net income margin assumptions for this quarter are relatively low, there is a distinct possibility for positive surprises. While revisions for the middle of last year were aggressive, the updates for this current quarter have been more gradual but consistently positive.
Post Liberation Day deeply negative revisions, estimates have moved up again
Source: Bloomberg
2026 earnings outlook and revisions
Looking toward 2026, the outlook remains positive. US earnings growth is expected to accelerate to over 14% for the year as growth becomes more broad-based across different sectors. Europe is expected to recover as it digests the impact of tariffs and as consumer demand stabilises. Emerging markets should continue to benefit from AI deployment while domestic demand in China reaches a trough.
Earnings are prone to revisions, but the current outlook remains positive:
Over the past few months, earnings revisions for 2026 earnings have been mostly positive, particularly in Japan and Emerging Markets:
Source: Factset
Conclusion
In conclusion, the current earnings season should confirm the ongoing robust demand for AI and the early signs of a broader economic recovery. As earnings growth remains strong and is expected to accelerate into 2026, it provides necessary support for current market valuations. As governments globally increase fiscal support, we remain in a reflationary environment that is generally positive for corporate earnings, making equities a key asset class for the year ahead.