Earnings growth and interest rates: Competing forces for US equities

As of Friday, 7 August, 88% of companies in the US S&P 500 had published their second-quarter 2026 results. Of those companies, eighty-six per cent reported earnings above analysts' expectations, while 76 per cent exceeded revenue forecast. S&P 500 companies have so far achieved 50% earnings growth in Q2 2026. This compares with analysts' expectations of 23% earnings growth by 30 June 2026. All eleven sectors are reporting higher earnings today than on 30 June, due to upward revisions to EPS estimates and positive EPS surprises. 

In Q2 2026, companies generating more than 50% of their revenues outside the United States have, on average, reported stronger earnings and revenue growth than the broader S&P 500 universe. Among sectors, Communication Services recordedthe highest earnings igrowth, at 117%, followed by Consumer Discretionary with 92%.

The Healthcare sector recorded the highest proportion of positive earnings surprises, with 98% of reporting companies exceeding analysts' expectations. Information Technology, Industrials, Real Estate and Financials also reported strong results, with 90%, 89%, 87% and 86% of companies, respectively, surpassing consensus earnings estimates.

According to Earnings Insight, the forward 12-month price-to-earnings (P/E) ratio of the S&P 500 was 20.0 as of 7 August. This ratio is above both the five-year (19.9) and ten-year (19.0) averages. Analysts on Wall Street now expect companies in the S&P 500 to achieve 30% earnings growth for the full year of 2026. At current valuations, this equates to a PEG ratio of 0.7x.

Interest rates remain an important element of the market backdrop.The yield on 10-year US Treasuries has increased significantly from levels observed five years ago has fluctuated within a range of approximately 3.7% to 4.8%. Higher interest rates in the US are likely a key reason why the S&P 500's price performance has slowed, despite sharp earnings growth among S&P 500 companies since the beginning of 2024, not to mention the almost exponential increase over the last two quarters. However, the weaker-than-expected nonfarm payrolls figure on Friday, 7 August, led some market participants to reassess the likelihood of additional near-term policy rate increases by the Fed. Nevertheless, future market performance will continue to depend on a combination of factors, including economic growth, inflation trends, monetary policy developments and corporate earnings outcomes.

From a technical perspective, the daily one-year chart shows the S&P trading sideways after a strong rally. This rally was driven by a weaker-than-expected July jobs report, which eased concerns over further Fed rate hikes and pushed Treasury yields down. It was also driven by an exceptionally strong second quarter earnings season, led by large-cap technology and AI companies. Meanwhile, oil prices continue to rise due to stalled US-Iran negotiations reducing hopes of the Strait of Hormuz reopening and low US strategic petroleum reserve levels. Against this backdrop, near-term risks appear to be skewed to the downside. The EMA9, currently at 7,668, serves as the first support level, followed by the 7,600 area.

The stock market has been quite volatile over the summer, particularly with regard to individual stocks and indices linked to AI and technology. There is growing concern that Chinese competitors may capture some of the future profits that have already been factored into leading tech companies in the US, as well as South Korean companies in the Kospi Index. 

Renewed military attacks by the US against Iran have took place in July, followed by counter-attacks by Iran and its proxies against US military bases, as well as Saudi Arabia and other Gulf states. The Houthi movement in Yemen, allied with Iran, has escalated the conflict from the Strait of Hormuz to the Red Sea - a vital shipping route that leads further north via the Suez Canal to the Mediterranean. 

Over the past three months, hostilities in the Middle East have caused the price of Brent crude oil to fluctuate between $70 and $110 per barrel. However, the long-term trend for oil prices seems to be downward. One possible reason for this is that the US has reportedly used up a significant amount of the weapons required for ongoing military action against Iran. Another factor is that neither President Trump nor parts of the Iranian leadership appear willing to continue the war.

The second quarter of 2026 was a rather weak earnings period for the 111 OMX companies listed on the Stockholm Stock Exchange having reported their Q2 results until 11 August. Of these, 57% exceeded earnings forecasts, and 67% exceeded revenue forecasts ahead of the reports. The financial sector (eight companies) outperformed the OMX average, with 75% of companies reporting positive earnings surprises. Encouragingly, 78% of the order intake figures (seven out of nine) exceeded consensus estimates, primarily from industrial companies.

On Wednesday, 12 August, Tencent, (China)  Vestas (Denmark), and Cisco (US) are all expected to announce their quarterly results. Turning to the macro agenda, we start with household consumption data from Statistics Sweden and the German consumer price index for July. This will be followed by Italy’s consumer price index for July. The IEA and OPEC will each publish their monthly oil market reports. In the US, the focus will be on the July CPI and weekly oil inventory data from the Department of Energy.

On Thursday, 13 August, interim reports are expected from the Danish company Maersk, the Britisch company Entain, the German company ThyssenKrupp, and the US company Applied Materials. In terms of macroeconomic news, the day will begin in Japan with the July Producer Price Index. A few hours later, the July Consumer Price Index for Sweden will be released in Europe alongside the UK’s Q2 GDP and June industrial production figures. Also due are Spain’s CPI for July and the eurozone’s industrial production figures for June. Norges Bank will announce its interest rate decision. The US will release data on the Producer Price Index for July and weekly jobless claims.

On Friday, 14 August, interim reports will be relaeased by Veidekke in Norway and DFDS in Denmark.

The day's macroeconomic news will begins with German wholesale prices and France’s consumer price index, both for July. Next, the Eurozone data will be analized, including the June trade balance and Q2 GDP. Turning to the US,  retail sales figures for July will be examined, unsold inventory figures for June, and the Michigan Index for August.

Since 24 July, the German DAX has risen by around 5%. Market participants have attributed the advance in part to strong earnings from SAP, a rebound in global AI and technology stocks, as well as resilient German industrial and export data. From a technical perspective, the DAX's RSI indicates potentially overbought conditions. Additionally, further increases in oil prices could weigh more heavily  on Germany’s industry-oriented economy than on the US economy. These observations may be viewed as supportive of a relative preference for US equities versus German equities; however, market outcomes remain uncertain and investors should consider the associated risks.

Returning to the US, the NASDAQ-100 is currently testing resistance, and the MACD recently generated a buy signal. Due to the index's limited direct exposure to oil prices, taking a long position could be appealing, especially if a tight stop-loss is placed around the MA20, which is currently at 29,244. A target near 30,270 would provider an attractive risk/reward ratio.

In Sweden, the OMXS30 is trading just above the EMA9 indicator and the 3,275-support level. A downside break of 3,250 may be next, followed by 3,220. Conversely, resistance is at 3,325.

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence