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More than 77% of the S&P 500’s market cap have reported earnings for Q4 2025, and three-quarters of companies have beaten analysts’ expectations.
Investors appear to be wary of the threat AI tools pose to a number of sectors, including software and wealth management.
Fourth-quarter earnings by blue-chip US companies in the S&P 500 index are up 12%, year-on-year, exceeding analyst forecasts by around 400bps1. Three-quarters of companies have beaten analysts’ expectations so far2.
A strong earnings season has coincided with a volatile period for the index and the results have not immediately boosted investor confidence.
Companies surpassing consensus earnings per share (EPS), sales, or both have seen excess one-day price gains of 85 bps, 90 bps, and 114 bps, respectively – against the long-term averages of 64 bps, 86 bps, and 124 bps, according to Bloomberg.
Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes notes that investors had high expectations going into earnings season and could be expected to take a more discriminating approach going forwards.
“Earnings expectations have been high coming into this reporting season, leading to elevated volatility around results. For many names, perfection was expected (and therefore priced in), and the subsequent growth or forward guidance numbers didn’t deliver,” she says.
“This dynamic has been particularly evident in sectors where valuation multiples had expanded meaningfully into year-end. That said, so far earnings per share growth has come in at 12%, year-on-year, which is above long-term averages,” she adds.
Figure 1: S&P 500 average EPS (%)
The broadening out of the market is something many people have been waiting for over the last couple of years, and we think it’s a trend that will continue to have legs for some time.
“However, risks are emerging and investors are being more discriminating. The sustainability of earnings momentum is being questioned. Investors with a longer time horizon are seeing through the near-term risk-off environment towards AI productivity gains. Though these gains are not yet to show up meaningfully, hence the investor reticence. We have seen some companies putting numbers to AI value generation. In particular, examples of early-stage scaling, with niche pockets of impact and revenue uplift,” she says.
The primary drivers of both the AI boom and S&P earnings growth last year – the Magnificent 7 – collectively poured US$400bn into AI investment in 2025, setting a series of record-high valuations in the process. However, fears over a potential bubble emerging led to a tech sell-off in January. The potential for AI to disrupt an ever-broadening range of sectors – potentially signalling massive lay-offs – has only exacerbated investor nervousness. US wealth platform Altruist unveiled tax planning AI platform Hazel last week, which prompted a sell-off in wealth management stocks3.
Figure 2: An uncertain start to the year for the S&P 500
As Figure 2 highlights, the S&P has struggled to make headway YTD, gaining just 0.05%4.
“It has been another week of AI fears as markets struggled with the potential of disruption,” says Damian McIntyre, Head of Multi-Asset Solutions at Federated Hermes. “While the fears had previously been mostly limited to software, it has spread to new sectors,” he says.
“Many logistics companies were hit after reports of a small cap karaoke manufacturer announcing it was integrating AI to disrupt the delivery space. Other industries that were hit included drug distributors, trucking, and health product distributors as investors panicked to find what would be hit next.”
1 Source: Bloomberg
2 Ibid.
3 Altruist introduces AI-powered tax planning in Hazel – Altruist
4 Bloomberg as at 19 February 2026.
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