The third-quarter earnings season has arrived at a critical juncture for financial markets, shifting the focus from broad macroeconomic themes to AI-fueled optimism and company-level performance. According to strategists at Barclays, “earnings are set to take center stage, potentially pivotal for sustaining the rally,” making this a defining “show-me moment” for the AI-driven market narrative.
With official economic data releases paused during the government shutdown, corporate results are taking on even greater importance. Options activity already reflects heightened anticipation. In the U.S., the non-weighted median implied earnings move for over 700 actively traded stocks sits at 5.5%—the fifth-highest level in a decade. Even after accounting for the recent jump in the VIX, expectations remain notably elevated.
Strategists highlight that “options are indeed priced for outsized moves in US & EU, thus setting the stage for continued stock dispersion.” The team led by Anshul Gupta points out that in 2025, implied earnings moves have routinely exceeded actual results, particularly in Materials and Staples, while Tech remains an exception with implied and realised volatility closely aligned over the past two years.
For the first time since the second quarter of 2024, the options market is pricing larger earnings swings for the so-called Magnificent 7 stocks compared to the rest of the market. The median implied move for this group is 6.1%. While expectations for the broader market have moderated, those for Big Tech have climbed, reflecting investor confidence in another strong earnings season after these companies powered last quarter’s upside surprises.
In Europe, roughly 65% of the STOXX Europe 600 market capitalization will report in the next five weeks. Implied earnings moves are hovering around 4.5%, near two-year highs and above what has been realised in recent quarters. Volatility expectations are highest in Industrials, Consumer Discretionary, and Financials, whereas Tech, Telecom, and Real Estate appear more subdued despite their participation in the year’s rally.
Last quarter, European companies that missed expectations saw more severe share price reactions than those beating forecasts. Barclays warns that this dynamic could repeat, as markets grow more sensitive to company-specific outcomes amid a mix of tariff risk, policy uncertainty, and AI narratives.
Strategists note that declining correlations between indices and sectors, along with a widening gap between single-stock and index volatility, suggest investors are positioning for more idiosyncratic stock reactions rather than broad market moves. Even after last week’s tariff shock and one of the biggest single-day sigma moves in the SPX in a century, volatility remains contained. Barclays’ Equity Euphoria Indicator is “still well above long-term averages,” underscoring the persistent bullish sentiment among retail investors.
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