JPMorgan strategists expect third-quarter corporate earnings to provide support for equity markets, citing indications that profit growth is expanding beyond artificial intelligence-related companies and across a wider range of sectors.
A team led by Mislav Matejka said earnings expectations remain elevated at the index level but become more moderate when the contribution from individual companies is excluded. The strategists believe the reporting season could shift investor attention towards corporate fundamentals following recent market volatility.
US Earnings Forecasts Reflect Significant Contributions From Technology Companies
According to IBES consensus estimates, earnings per share for the S&P 500 are expected to increase 24% in the third quarter. Estimates from FactSet and LSEG indicate growth of 30%, reflecting an adjustment for a one-off tax charge at Meta (NASDAQ:META).
Excluding Nvidia (NASDAQ:NVDA) and Micron Technology (NASDAQ:MU), expected earnings growth falls to 15%. The median S&P 500 company is projected to report an 8% increase.
In Europe, consensus forecasts indicate earnings growth of 19%, declining to 11% when energy companies are excluded. Median earnings growth is estimated at 9%, while median revenue growth stands at 7% for both the S&P 500 and the Stoxx 600.
JPMorgan said these figures suggest that earnings expectations are less demanding across the broader market than headline index forecasts indicate.
Economic Indicators Point to Continued Earnings Expansion
The bank identified improvements in global purchasing managers’ indices during the third quarter, with several measures reaching multi-year highs.
JPMorgan’s proprietary earnings indicator also continued to rise. According to the strategists, the indicator typically leads reported earnings by approximately two quarters, providing a basis for their expectations of continued growth over the next two reporting periods.
The team also reported that the proportion of global companies experiencing accelerating earnings growth is approaching a record level.
Although artificial intelligence remains a significant contributor to US corporate earnings, JPMorgan said profit growth is becoming more widely distributed across industries.
European Profit Margins and Sector Outlook
In Europe, JPMorgan expects operating margin expansion to contribute to earnings growth. The bank forecasts earnings before interest and taxes as a percentage of sales at 14.4% this year, approximately 250 basis points above the 2019 level.
Most European sectors are expected to record improvements, although consumer staples, automotive companies and software businesses are exceptions.
The strategists identified currency movements as another factor affecting corporate performance, suggesting that a weaker euro could benefit European exporters.
Energy companies may report results above market expectations, while mining companies face potential downside risks. JPMorgan also identified exposure to China and consumer spending as areas where earnings could remain subdued.
Companies may additionally highlight increased energy costs in their financial updates.
Semiconductors, Industrials and Banks Among JPMorgan’s Preferred Sectors
JPMorgan expects semiconductor and industrial companies to report favourable third-quarter results relative to market expectations.
European banking shares have experienced valuation declines exceeding 10% in recent weeks, although the strategists anticipate that upcoming earnings announcements will provide support for the sector.
French equities have also experienced valuation reductions of more than 15%, despite earnings remaining relatively stable, according to the bank.
JPMorgan noted that approximately 75% of revenue generated by companies in France’s CAC 40 index comes from markets outside France, highlighting the index’s exposure to international business activity.
The bank maintains a positive outlook on European semiconductor manufacturers, banks, chemical companies and industrial businesses.
Bond Yields and Market Expectations
JPMorgan also examined the recent increase in bond yields, suggesting that the move may be approaching an oversold condition.
The strategists said a stabilisation in yields during the earnings reporting period could create conditions for equity markets to advance towards the end of the year, accompanied by greater investor demand for risk assets.
However, this remains a conditional market outlook rather than an established development.
Overall, JPMorgan expects third-quarter earnings announcements to redirect investor attention towards company results and underlying economic conditions following September’s market volatility.