Haymaker Daily
On earnings optimism
Hello, Subscribers:
While there’s a healthy dose of doom and gloom in the markets (and these pages) of late, there are some reasons for optimism. With the bulk of Q3 earnings now behind us, over 90% of U.S. companies and more than half of their European and Asian counterparts having reported, the global earnings season has surprised to the upside.
Across the board, earnings beats came in at the top end of historical ranges. In the U.S., the breadth and strength of earnings growth stood out most, as two-thirds of S&P 500 companies reported double-digit profit growth, and sector participation meaningfully expanded. Even stripping out the usual tech and megacap suspects, median earnings growth ex-Mega Cap Growth and Tech jumped from 1.4% last quarter to nearly 7% in Q3.
Japan, too, posted a blowout 16% earnings growth rate, turbocharged by a weakening yen (yes, that would be the absurdly undervalued yen). Meanwhile, Europe’s headline numbers looked more muted at 2.5% y/y growth, but that masks weakness concentrated in Energy and Autos. Excluding those sectors, the continent’s corporate earnings have quietly marched higher since 2021.
Emerging markets (EM) may be entering their own earnings breakout phase. Q3 growth came in at 8.6% (near the top of the post-2024 range) even excluding the cyclical tailwind from semiconductors (read: Taiwan Sem, TSM; believe it or not, Taiwan is considered an emerging market). Consensus forecasts have responded in kind, with forward upgrades for 2026 now pointing to double-digit growth across regions: ~13% in the U.S., Japan, and EM; ~10% in Europe.
Notably, EM forecasts were bolstered by upward revisions to Korea and Taiwan (TSM again), while U.S. earnings expectations have clawed back to pre-“Liberation Day” (April) levels. Sales growth remained robust in the U.S. and EM, and margins across most markets held near cyclical or record highs. While Europe and Japan still lag in terms of forward optimism, the overall picture suggests a global earnings backdrop that’s less fragile than macro bears would have you believe.
How much of that growth upside is a function of feverish AI spending? That’s a valid question, particularly given intensifying suspicions that a massive over-investment in AI is occurring. That immense spending has definitely benefited a long-time Haymaker favorite, the aforementioned Taiwan Semiconductor.
David “The Haymaker” Hay
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