Signs from sales
Year-to-date stock market returns have been driven by robust earnings growth. But when assessing the equity outlook, it’s important to ask what’s supporting the strong earnings trend.
3 mins Reading time
Published on 15 July 2026
As second quarter earnings season gets underway, we look at the historically important variable of sales to understand performance. Corporate earnings are a function of both sales and margins. As we’ve highlighted before, S&P 500 margins are at or near all-time highs because of cost cutting and efficiency gains. But even as margins improve, sales growth remains essential to sustaining earnings momentum.
After a softer period following the post-pandemic boom, sales expectations are improving. Consensus estimates for 12-month forward sales have moved up this year and are nearly 14% higher than a year ago, highlighting the resilience of the broader economy. While sector-specific tailwinds such as AI adoption are helping drive sales and earnings growth, the trend is not limited to technology. Sales for S&P 500 companies outside the technology sector are still expected to increase 8.7% from a year earlier.
In short, rising sales expectations are a positive signal for markets. They suggest analysts expect companies to generate more revenue in the coming year, which can support earnings growth, strengthen corporate fundamentals and renew investor confidence. Although sales growth is nearing the upper end of its historical range and may slow at some point, its broad-based, continued momentum remains a positive signal for our 2026 outlook.
966921 Exp : 15 July 2027
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Higher inflation and elevated interest rates typically weigh on corporate profitability, yet corporate margins continue to climb to record highs. While that strength is evident both in the U.S. and abroad, U.S. outperformance versus Europe is now the widest on record. Stronger margins have helped contribute to better-than-expected earnings and reinforce U.S. equity leadership. The question now is whether that strength can persist?
Higher interest rates have become a frequently cited risk to corporate earnings and the economy. The conventional thinking is straightforward: when borrowing costs rise, companies face higher interest expenses, profits come under pressure, and economic growth slows. While there is truth to that relationship, the current cycle may differ from investors’ expectations.
Both the dot-com era and the rise of artificial intelligence suggest that early productivity data can understate the actual economic impact of transformative technologies. In the case of the internet, later revisions to productivity gains surpassed early estimates. The same may prove true for AI, implying stronger support for growth.
History of stocks after the Fed hikes
History of stocks after the fed hikes
Sticky inflation and resilient growth have revived monetary tightening, increasing the risk of higher-for-longer rates and near-term volatility. We continue to believe economic resilience and strong corporate profits should continue to provide a favorable backdrop for stocks, and would use periods of market weakness to add selectively to equities. Additionally, owning real assets can help hedge against inflation.
