Where is the real driving force behind the stock market?
In the midst of the Q2-26 results presentation phase, listed companies are once again reminding the market where the true engine of the stock exchanges lies.
The second-quarter 2026 earnings season has gotten off to a good start in both Europe and the United States. In the US, according to a report by the American analyst First Trust, although only 81 companies in the main index, the S&P 500, have reported their results, aggregate earnings (including actual results and estimates from companies that have not yet published) have increased by 25.9% year-over-year, exceeding the 23.2% growth forecast before the reporting season began . While the market has already largely priced in a significant increase, as well as the expectation that earnings will continue to be revised upwards, the data for the entire US market remains quite positive.
As expected, the information technology sector is contributing most to profit growth, with a projected year-on-year increase of 63.4%. The energy sector follows in second place, driven by rising oil prices after the conflict with Iran and the temporary closure of the Strait of Hormuz.
European listed companies have not lagged behind , and their profit growth is following that of the United States, which is partly responsible for the recent strong increases we are experiencing in our stock markets .
The figures are so staggering that markets are largely ignoring the escalating tensions in the Middle East : the US strategic bombings of Iran and the subsequent retaliatory measures have been met with relative indifference in both the oil and stock markets. In any case, we will see how the truce negotiations taking place behind the scenes develop.
Prices will follow the results
It’s worth remembering that, over time, stock prices tend to follow earnings trends , and the trajectory of these earnings, especially in the S&P 500 index, is very revealing. As the report cited above reminds us, the pandemic-induced shutdowns in 2020 caused a sharp drop in earnings, with earnings per share (EPS) falling from $162 in 2019 to $138, representing a 15% decline in share prices. However, this dip proved to be short-lived . Earnings recovered quickly, reaching a then-record high of $207 just two years later. A similar pattern emerged in Europe, where the stock market experienced a strong recovery after the initial impact of the COVID-19 pandemic.
Since then, the trend in the US has been one of steady growth, with EPS rising to a new high of $273 in 2025. Looking ahead, expectations remain strong: the consensus among analysts forecasts earnings growth of around 23% in 2026 and 18% in 2027, which would represent one of the highest consecutive growth rates in recent years.
It’s not just the technology
The evolution of earnings has changed considerably in the US over the past two years. During 2023 and 2024, the so-called » Magnificent 7 » (Apple, Microsoft, NVIDIA, Alphabet, Amazon, Meta, and Tesla) accounted for most of the S&P 500’s earnings growth , with profits soaring nearly 60% year-over-year at their peak (fourth quarter of 2023), while the remaining 493 companies struggled to generate any growth. Currently, the outlook appears much healthier. On the one hand, earnings growth for the «Mag 7» has slowed, and on the other, and very importantly, the remaining 493 companies have shown a dramatic improvement, generating consistent growth over the past two years.
Analysts expect this trend to continue, and profit growth for companies outside the «Mag 7» is projected to outpace that of the Mag 7 in the second half of this year. And make no mistake, strong earnings are generally a positive sign for the markets in general, and particularly for European markets, which tend to maintain less demanding valuations.
Maintaining investments
Although the equity rally is currently losing momentum , what has happened so far in the stock markets is remarkable: despite oil prices rising almost 40% since the eve of the war, the S&P 500 has managed to register an 8% increase, and the Eurostoxx 50 a similar rise. It is true that oil’s influence on global GDP has decreased considerably in recent decades, mitigating the potential impact on economic activity, but this does not negate the fact that the resilience of risk assets outside the technology sector since the start of the war and the strength of the global economy currently provide a positive environment for investment.
Over the next few weeks, we will experience periods of volatility and significant sector rotation, and we will have to wait until a clear upward trend is re-established. Therefore, the most prudent course of action for investors would be to err on the side of caution in the short term while maintaining market exposure, as the rationale for doing so remains intact, as demonstrated by the evolution of corporate earnings discussed in this column.
Let’s focus more on the sectors driving human growth, such as those related to digitalization, artificial intelligence, and the energy transition, and take advantage of any stock market downturns to restructure our portfolios and/or increase our positions accordingly. Corporate profits, the engine of the stock markets, will continue to support investors.