The big things you need to know: First, the early stats from 2Q26 reporting season look a little mixed as reporting season kicks into high gear. Second, early earnings commentary from the companies that reported over the past week highlights a cautiously optimistic tone, consumer resiliency, and complicated AI impacts. Third, other things that jumped out in our latest updates include further evidence of stabilizing sentiment on the NFIB and University of Michigan consumer sentiment surveys (which have encouraged the rotation trade) and evidence of weaker flows to US equities (which point to the possibility of some geographical pressure on the US equity market).
If you’d like to hear more, here’s another five minutes.
Starting with Takeaway #1: Mixed Early Earnings Stats
• First, as the week began, the 2Q26 EPS growth rate (yr/yr) anticipated by consensus had slipped from nearly 24% to nearly 23% (on Friday, with the week’s updates in, it had rebounded to 25%, getting back in a better direction).
• Meanwhile, the percent of companies beating consensus in the S&P 500 on EPS remained up versus last quarter but was still lower than last quarter for sales.
• Additionally, the rate of upward EPS estimate revisions for the S&P 500 as a whole continued to show signs of slippage in our latest update including the index’s biggest market cap names and the rest of the index.
• Outside of the US, we’ve also seen a bit of slippage on this stat for Canada and Australia.
• While rotation and broadening has been a theme in recent trading in the US equity market, what we’re seeing in these stats may point to the emergence of more generalized softness at the start of last week on the earnings front. We’ll keep an eye on these stats to see if the signal changes in the weeks ahead.
Moving on to Takeaway #2: Early Earnings Commentary Highlights A Cautiously Optimistic Tone, Consumer Resiliency, And Complicated AI Impacts
So far, we’ve heard mostly from Financials, which provide an important bigger picture starting point. As we get more sector diversity in the weeks ahead, the narrative around reporting season will evolve, but here is what we’ve picked up on so far:
• On the broader macro backdrop, companies noted the resiliency of both corporates and consumers and emphasized strong and resilient demand trends and a continuation of the status quo. While the overall backdrop was acknowledged as both dynamic and uncertain, the economic backdrop was generally described as constructive and stable with a durable consumer, solid manufacturing, no slowdown in health care procedure volumes, and tailwinds from AI alluded to. Some investment banks highlighted strength in capital markets activity including trading and dealmaking. A few also emphasized they were being mindful of risks that might emerge suddenly or be difficult to identify.
• On the consumer, Banks highlighted strong spend and that they were not seeing any problems in delinquencies, credit quality, or credit losses, though some did acknowledge that the consumer had benefited from tax refunds and one called out that consumers had reduced spend in other areas due to high gas prices. A few banks noted strength was in place across various cohorts. Airlines noted no slowdown in demand trends even with higher fares, along with strong December bookings, and an ongoing consumer preference for experiences.
• AI was in focus. This is worth noting given the sectors represented came mostly from Financials with a few Industrials and Health Care companies sprinkled in. One recurring theme we took note of was how companies were talking about gauging the impact of AI on day-to-day business. Some Financials ran through various numbers related to their own workforces, while others zoomed out to highlight how the AI benefits were a “package” or mattered because of how various things came together. Productivity and efficiency remained key themes in this discussion, and outside of the Financials, we found some of the Health Care commentary on how AI helped with various administrative tasks to be helpful. Adjacent to this conversation, the difficulty of untangling AI from other drivers of capex and lending and other economic was another recurring topic. One company noted it would be difficult to quantify portfolio level impacts but that they looked at these on an individual basis. Some Financials also referred to the idea that AI was early days, wouldn’t be “without bumps and recalibrations,” and that it was possible “capacity gets absorbed just over a much longer time frame than people anticipate.”
Wrapping up with Takeaway #3: What Else Jumps Out
• To begin with, signs of stabilizing sentiment continue to emerge.
• Small business optimism improved in the latest NFIB survey released last week, with views on the economy and capex both picking up.
• Meanwhile, consumer sentiment also showed signs of continued and broad-based improvement on the University of Michigan survey.
• These data points are just one of a number of releases pointing to improving cyclical health in the US and have likely contributed to the broadening trade in the US equity market, but it is worth noting that war re-escalation may put the better consumer sentiment trends at risk.
• And finally, flows get interesting.
• In this week’s EPFR update, weaker trends in US equity flows alongside improving trends in Western European funds stood out. Within the US, we also took note of weaker flows to blend funds and outflows from both Growth and Value equity funds.
• This data suggests to us that despite the re-escalation of the Iran war, which one would think should benefit the US fundamentally, the US has come under some pressure from a geographical perspective.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
