Commencing the Quarter – Q3'26

As we kick off the Q3’26 earnings season, the headline picture remains healthy. Equity markets remain supported by AI, semiconductors, and mega-cap Tech names, and expectations for year-over-year revenue and earnings growth are broadly positive. However, that picture of strength and resilience hides the significant churn underneath the surface. Beneath the index level, a large share of companies across multiple sectors have recently traded in correction or bear-market territory, as higher yields, persistent inflation, and continued consumer strain weigh on rate- and consumer-sensitive areas. The market is holding together despite the froth, and investors are keen to distinguish durable company-specific strengths versus cycle sensitivity.

Despite the recent return of volatility, management teams have not responded by turning materially more defensive. Most continue to speak with confidence, leaning into strategic investment goals while emphasizing the levers within their control. The tone has been one of measured optimism: demand has not fallen away, and examples of company execution carry more weight than economic forecasting.

Industrials capture that dynamic particularly well. Orders and backlogs are improving, select end markets are inflecting positively, and several companies see the groundwork for a recovery taking shape. Even so, management teams are generally resisting the urge to frame the improvement as a snapback. While supply constraints, cost pressures, and the timing of revenue conversion remain part of the story, investors are focusing on how quickly improving fundamentals can show up in earnings.

AI continues to sit somewhat apart from the rest of the backdrop. Demand remains strong across infrastructure, networking, software, and enterprise solutions. Investors are clamoring for more disclosure, with 69% citing that current levels of company disclosure around tangible impact are too little. Importantly, our findings show that while investors currently favor margin metrics, they still see growth as the most positively impacted facet over the long term.  

Taken together, the setup places a greater premium on credibility and execution. Investors are still willing to underwrite growth, but the burden of proof is rising as market leadership narrows and macro visibility stays limited. The most impactful narratives this quarter will be those that make clear what is truly company-specific, where demand is strengthening or softening, and how management is balancing growth, pricing, volume, margin, and investment without relying on a better macro environment to do the work for them.

Key Themes:

• Macro & Outlook: Management Teams Continue to Strike a Broadly Confident Tone
• Demand: AI Continues to Drive Demand, but Evidence of Broadening Strength Remains
• Pricing: Consumer-Exposed Teams Signal Prioritizing Value While Protecting Long-term Economics
• Consumer Health: Management Cites Cautious Consumer that is Increasingly Seeking Value…Stop Us if You Have Heard this Before
• Tariff Refunds: Companies Stuck Between Reinvesting Refunds and Offsetting Cost Pressures
• AI Opportunity: Commentary Continues to Emphasize AI as a Driver of Growth & Productivity