Positive signals from capex?
The One Big Beautiful Bill Act’s provision regarding the full expensing of capital expenditures is already having an impact on companies’ investment plans. We believe this a positive signal for economic growth.
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Published on 01 September 2025
Second quarter earnings season is winding down, with ~92% of S&P 500 companies having reported. Over 80% of those companies beat analysts’ expectations, pleasing many investors and correcting a downward shift in S&P 500 margin estimates that has stabilized since May.
Margins illustrate the quality and durability of corporate earnings by demonstrating how effectively a company controls costs and converts sales into profits. In 2025, net margins are expected to reach 13.3%, up from 12.9% in 2024, as well as increase another 0.7% to 14.0% in 2026. Notably, estimates for technology companies are significantly better than those of the entire S&P 500.
In fact, technology enhancements are the key driver of higher margins for the index. Specifically, the continued development and broadening adoption of artificial intelligence (AI) should bolster companies’ productivity and, in turn, lead to higher margins. Some of the ways that AI increases margins include improving operational efficiency, employing data-driven decision making, enhancing supply chain optimization, and enabling product and service innovations.
The immense progress in AI and its encouraging potential support our constructive view of equities. Improving estimates for both margins and earnings underscore our overweight position in large cap stocks and should push the market higher by year end.
798642 Exp : 01 September 2026
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It’s true that the S&P 500 currently exhibits high valuations, with the technology sector alone comprising over 40% of its market capitalization and driving concerns about valuations. Are those high multiples justified?
Last Friday, Federal Reserve Chair Jerome Powell described a shift in the balance of employment and inflation risks, and the market rallied on the news. For us, nothing has changed. We have been closely monitoring the labor market and indicators of inflation, and we continue to expect two rate cuts this year.
Second quarter earnings season is winding down. Nearly all companies have reported, and the majority beat expectations as margin estimates continue to rise.
Second quarter earnings season is winding down, but earnings are up, and better than expected. Despite some potentially concerning signals from the real economy, including muted job gains, and possible seasonal volatility, we remain constructive on equities. A positive second quarter earnings season strengthens our conviction.
