Last month we highlighted the support that, historically, earnings seasons have provided to equity markets. However, this thesis has only been partially fulfilled in recent weeks: the S&P 500 fell by 0.87% in October, with a more pronounced decline across the technology sector. Europe showed better performance, with a 1.87% increase in the Stoxx 600.
Nonetheless, the earnings season has been, in general terms, solid, with upward revisions of margins, revenues, and profits in the United States. However, this has not been enough to reassure investors, who are questioning whether the momentum of all things related to artificial intelligence (AI) can be sustained. Some companies have been heavily penalised: Intel plummeted more than 45% after disappointing forecasts for the fourth quarter, Sandisk lost 35% despite reporting solid results and upward revisions, and Google fell 13% in a single session after its search business revenues came in below expectations.
Behind these sharp corrections lie growing investor doubts about the pace of investment in AI, the future profitability of these investments, and the sustainability of very high profit expectations. These doubts are also evident when comparing the evolution of indices this year with profit growth: the S&P 500 had accumulated a rise of “only” 11.7% by the end of October, while profits are expected to grow by 33%. As a result, the estimated 12-month P/E ratio has fallen below 18 times, compared to 22 times recorded at the beginning of the year.
We continue to maintain a generally positive view on hyperscalers and the semiconductor sector, although we are more cautious with the more leveraged players, such as the so-called neoclouds.
What also allows us to maintain a reasonably constructive view on equities, despite the recent volatility, is that growth forecasts remain positive in the major economies. Global growth is expected to close 2026 around 3%, most leading indicators continue to accelerate, and labour markets maintain a favourable situation. This scenario is especially visible in the United States, although improvements are also observed in the United Kingdom and Germany, while the economies of southern Europe continue to show a generally solid evolution.
A market resilience with nuances
However, risks remain present, with a Middle East as complex as ever and persistent pressure on energy commodity prices. Oil rose 19% during the month and natural gas 43% in the eurozone. This will push electricity prices up in much of the eurozone in 2027 and increase the risk of second-round effects on inflation. For now, these effects remain limited in both the United States and the eurozone, but the risk is increasing.
The rising cost of energy also poses a threat to household consumption in the coming months and quarters, especially as wage growth is not gaining momentum. Consumption remains very strong in the United States, supported by financial markets that have so far shown very favourable behaviour, although the volatility observed in recent weeks could end up affecting it.
This risk is even greater in the eurozone, where real wages have returned to negative territory. In this context, the evolution of the situation in the Middle East continues to be a key factor for markets and the global economy.
It will also be necessary to assess the implications of the midterm election results in the United States. A Democratic victory is likely to lead to a more confrontational relationship between the president and Congress, with the possibility even of a partial government shutdown this December. The big unknown is how Donald Trump will react on key issues such as tariffs or relations with Iran. For now, there are no certainties. In light of the accumulation of uncertainties for the coming months, we have adopted a more neutral stance, after having maintained a positive view for a long period.
Key factors for the markets
• Strait of Hormuz: the evolution of commodity prices will be decisive for fixed income markets.
• French budget: in the current context, the approval of a budget has become a necessity.
• Midterm elections in the United States: the main unknown is how Trump will act after the elections.
Our positioning
Equities: solid earnings season, but strong doubts about the technology sector. Although investor positioning has already been significantly reduced, it is still not at extreme levels, so we maintain a globally neutral view.
Credit: doubts about the technology sector are mainly explained by the high capital needs to finance the development of artificial intelligence, a situation that is widening credit spreads. Therefore, we maintain a cautious stance regarding the sector.
Rates: on the other hand, inflationary risks remain very present. Following the fall in bond yields observed in recent weeks, expectations for a more accommodative monetary policy have moderated. Consequently, we have withdrawn our positive market bias.
