Monday, October 19, 2026
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As we enter the final quarter of 2026, there are good reasons to remain optimistic about global equity markets. Despite geopolitical uncertainty, concerns about valuations and questions over the sustainability of the artificial intelligence boom, the underlying fundamentals of listed companies remain encouraging.
Corporate earnings are growing strongly, financial conditions are supportive, and importantly, much of the market’s performance is being driven by genuine improvements in profitability rather than simply investors paying higher prices for shares.
The most compelling argument for equities is earnings growth. Across global markets, corporate profits have continued to expand in 2026, with expectations pointing towards further strong growth into 2027. In the United States, earnings momentum has been particularly encouraging, with growth accelerating relative to the rates experienced in 2024 and 2025. This matters because, over the long term, corporate earnings are the principal driver of equity market returns.
Perhaps more importantly, earnings growth has been outpacing share price appreciation in parts of the market. When profits rise faster than share prices, valuations become more attractive. In other words, even after a period of positive market performance, investors may be paying less for each dollar of corporate earnings than they were previously. Strong markets do not necessarily mean expensive markets.
Growth is broadening beyond technology too. One of the most persistent concerns about US equities has been their dependence on a handful of large technology companies. While these businesses have undoubtedly been important drivers of earnings and market returns, the picture is becoming more balanced. Earnings growth outside the technology sector has strengthened, suggesting that the expansion in corporate profitability is spreading across the wider economy. This is an important development because a market supported by improving earnings across industrials, financials, consumer businesses and other sectors is arguably more resilient than one dependent on a narrow group of companies.
There is also growing reason to believe that investment in artificial intelligence is beginning to translate into tangible economic benefits. For several years, investors have questioned when the enormous sums being spent on AI infrastructure would deliver measurable improvements in productivity and profitability. The acceleration in corporate earnings growth during 2026 is consistent with the possibility that some of these benefits are beginning to emerge, although it remains too early to attribute the improvement directly to AI.
Another underappreciated source of strength is the financial position of US companies. Corporate interest expenses, measured relative to revenues, remain exceptionally low by historical standards, despite the higher interest-rate environment of recent years. This reflects the ability of many businesses to lock in borrowing costs at historically attractive rates, alongside strong revenue growth and generally disciplined balance-sheet management. A relatively modest interest burden leaves more income available for investment, dividends and shareholders, while also providing a cushion against economic uncertainty.
Energy costs offer another reason for perspective. Although geopolitical tensions involving Iran have raised concerns about oil prices and supply disruptions, the US economy is considerably less energy-intensive than it was in previous decades. Energy expenditure relative to GDP is structurally low by historical standards, meaning that an increase in oil prices does not necessarily carry the same economic consequences as the oil shocks of the 1970s.
Market volatility remains relatively subdued as well, further supporting the strong outlook into the end of the year for equities. The VIX, a widely followed measure of expected US equity market volatility, has remained low, suggesting investors are not currently anticipating severe market turbulence.
Our central message is straightforward: equity markets have performed well, but corporate earnings have been doing much of the heavy lifting. If that continues, there is a credible case for global equities to finish 2026 strongly, with further opportunities extending into 2027.
We would like to thank Dominion Capital Strategies for writing this content and sharing it with us.
Sources: Bloomberg, Yahoo Finance, Marketwatch, MSCI.
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