Q: What has the latest earnings season told you about the US market?
The key story is that US equities continue to be supported by solid earnings growth, and importantly, it's no longer just the biggest technology companies driving that growth.
What’s particularly notable is the acceleration we’re seeing within what is otherwise a mature economic expansion. Innovation, particularly around AI, is encouraging companies to invest heavily, creating opportunities well beyond the technology companies at the centre of the AI story.
Q: Economic data has been weaker recently. Should investors be concerned?
The economic data has been somewhat softer than expected recently, but the latest earnings season has been encouraging. This has helped investors look through some of the weaker economic indicators.
Inflation data has also shown some signs of improvement. There is still considerable uncertainty, however, and we continue to monitor both the economic data and companies' earnings outlooks.
Q: Are markets having to navigate a new relationship between the Fed and Treasury?
One development we're watching is the changing relationship between policymakers and financial markets. The Fed appears to be placing greater emphasis on allowing markets to respond to economic data and developments, while the Treasury has shown a greater willingness to influence financial conditions through its actions in the bond and currency markets.
For investors, that creates another layer of complexity. It's no longer just about what the economic data tells us or what the Fed might do next; we also need to consider how Treasury policy could affect markets and borrowing costs.
Q: How has the earnings outlook changed since the beginning of the year?
It has improved significantly. At the end of February, our expectation was for US earnings to grow by around 15% in 2026*. That has since risen to around 27%. Our expectation for 2027 has similarly increased, from around 14% to 22%*.
The important point for us is not simply the level of these forecasts, but what is driving the improvement and whether it can be sustained.
Q: Are companies spending too much on AI?
The scale of AI investment is remarkable. Some of the market's most profitable companies are spending heavily because the risk of falling behind in AI appears increasingly difficult to accept.
For investors, the key question is whether the returns from that investment will ultimately justify the level of spending. We're already seeing the impact on some companies' margins, cash flows and borrowing, so the availability and cost of capital will be important in determining how far the investment cycle can run.
For us, this makes the credit markets an important part of the picture. If companies can continue to access capital on reasonable terms, the investment cycle may have further to run.
Q: Does that mean you need to pick the winners in AI?
Not necessarily. We think there are opportunities across the wider ecosystem created by AI investment, including companies that provide the capital, infrastructure or services needed to support it.
For example, investment banks can benefit when companies raise capital to fund investment, without them needing to predict which technology company will ultimately emerge as the winner.
This is an important part of our approach: rather than focusing only on the most obvious beneficiaries, we look across the wider ecosystem for companies that could benefit from the investment cycle.
Q: Where else are you seeing potential opportunities?
Healthcare is an area we find interesting.
Innovation funded earlier in the decade is beginning to produce potential new treatments and solutions, while ageing populations provide a long-term source of demand. We are also seeing greater pricing discipline in parts of the sector following some difficult experiences in recent years.
Healthcare is another area where AI could potentially have an impact, particularly through greater automation and more efficient administrative processes.