Category: Market News

Artificial intelligence investment is accelerating rapidly across corporate America, but Goldman Sachs says the technology has yet to produce a clearly measurable earnings advantage for most S&P 500 companies.

The latest earnings season was nevertheless strong. S&P 500 earnings per share advanced 31% year-over-year in the second quarter after stripping out exceptional income associated with private investment stakes. AI infrastructure companies, including hyperscalers, contributed around half of that growth as their combined earnings increased 54% from the previous year.

Corporate profit growth was also relatively broad. Once the energy sector and its benefit from higher oil prices are removed, the median company in the S&P 500 still generated a 14% year-over-year increase in earnings.

The disconnect, according to Goldman strategists led by Ben Snider, is that companies are still struggling to demonstrate how deploying AI is feeding through to their bottom lines. Only 11% of S&P 500 businesses provided quantified productivity improvements for individual AI use cases during their latest earnings calls, including areas such as coding and customer service.

An even smaller 2% of companies quantified AI’s direct effect on earnings, leaving that proportion unchanged from the first quarter.

“Q2 results showed a small and statistically insignificant difference in earnings growth between the companies quantifying AI productivity gains this quarter and other S&P 500 companies,” the strategists wrote.

The potential for a more visible earnings contribution is increasing, however, as businesses rapidly expand their AI budgets. According to the Ramp AI Index, median monthly AI spending per employee more than doubled from $5 in January to $12 in July. The increase has been much greater among the highest-spending companies, with businesses in the top decile lifting monthly expenditure from $240 to $650 per employee over the same period.

For now, those costs remain manageable relative to corporate revenues. Goldman estimates AI inference spending amounts to less than 0.5% of S&P 500 sales. Its IT Spending Survey also indicates that roughly two-thirds of businesses are funding AI initiatives by redirecting money already allocated elsewhere.

Software budgets are the most common source of those funds, accounting for 18% of reallocations, while labour represents 11%.

That shift has not yet translated into widespread pressure on the software industry. Although individual companies such as Starbucks are developing internal AI products capable of replacing external software, broader software revenue growth has strengthened modestly over recent quarters. Software stocks have also rebounded after previously coming under pressure.

For investors, Goldman says the uncertain distribution of AI’s eventual financial benefits is influencing market positioning. AI infrastructure businesses offering clear and immediate earnings growth have attracted investor demand, while the market has been less willing to make aggressive bets on which companies will ultimately convert AI-driven productivity improvements into lasting earnings growth.

U.S. equities could face a more unsettled backdrop as the next midterm election cycle approaches, with RBC Capital Markets looking to 2018 and 2022 for clues about how markets have historically behaved during comparable periods.

The second halves of both midterm years were volatile, differing sharply from the upward moves recorded during the two most recent presidential election years. In both 2018 and 2022, the S&P 500 established an early-autumn peak in August or September, declined to an October low, recovered to another high in November and then fell to a further low in December.

RBC strategist Lori Calvasina noted that while those market swings were sizeable, they ultimately played a role in creating more sustainable lows that extended into the following year. Political uncertainty was not the only driver. Federal Reserve policy and interest rates were important considerations during both episodes, while trade policy created additional pressure in 2018. In 2022, investors were also dealing with weakening technology earnings and the Russia-Ukraine war.

There were notable similarities at the sector level. Consumer Staples and Health Care proved relatively resilient during the declines in both periods, while Technology and Consumer Discretionary underperformed. Leadership shifted during the subsequent recoveries, when Financials, Industrials and Materials performed strongly and Communication Services, Consumer Staples and Health Care trailed.

“To be clear, we are not calling for this kind of turbulence in the months ahead, but we did find the exercise useful for thinking through tail risks, particularly regarding the timing of inflections,” Calvasina wrote.

Separate factor analysis from RBC suggests high price momentum has recently regained strength across both the S&P 500 and Russell 2000, while EPS quality has fallen behind. Second-quarter corporate earnings calls also painted a mixed picture of the operating environment. Businesses highlighted challenges including geopolitical tensions, persistent inflation, supply-chain disruption and weak housing turnover, while reporting healthier conditions in areas exposed to AI, energy investment and reshoring.

Deal activity provides another potentially supportive indicator. RBC found that equities have generally continued moving higher while transaction counts remain strong, with market difficulties tending to emerge only after dealmaking activity loses momentum.

Valuations, meanwhile, do not appear to be at the extremes of their recent ranges. According to Calvasina, forward P/E ratios for both the S&P 500 and Nasdaq 100 are around the midpoint of their post-COVID ranges. The biggest S&P 500 companies show a similar valuation pattern, while the Russell 2000 is trading at approximately its average forward earnings multiple.

RBC remains constructive on the outlook for the S&P 500 over the coming year, with interest rates identified as the main threat to that stance. Calvasina expects corrections to be limited to roughly 5% to 10% unless recession concerns intensify or markets experience an interest rate shock. Within its broader positioning, RBC currently sees a slight advantage for Growth over Value and for U.S. equities over international markets.

UBS has raised its outlook for Eurozone corporate earnings in 2026 after second-quarter results showed stronger and more widespread profit growth across the region.

The bank now expects earnings for the EuroStoxx 50 to increase by around 15% this year, up from its previous forecast of 8%. For broader Eurozone indices, the estimate was raised from 11% to approximately 15%. UBS maintained its 2027 earnings growth forecast at 15%.

Second-quarter earnings growth accelerates

With most companies having now reported, Eurozone earnings are growing by approximately 22% year on year, according to UBS. Excluding the energy sector, growth is running at around 11%.

That compares with overall earnings growth of approximately 12% during the first quarter, indicating that corporate profitability gained momentum as the year progressed.

Cost discipline continues to support margins, but UBS expects revenue growth to play an increasingly important role as manufacturing conditions improve, currency-related pressures ease and companies benefit from stronger operating leverage.

Profit growth spreads across European sectors

The earnings recovery is becoming increasingly broad, with UBS forecasting profit growth across every sector this year.

Financial companies are experiencing renewed momentum as demand for loans improves and capital markets activity strengthens. Industrials are benefiting from investment linked to artificial intelligence, electrification and defence, alongside improving cyclical conditions in areas including automation.

The combination suggests the Eurozone earnings recovery is no longer concentrated in a small number of industries, providing a potentially stronger foundation for the regional equity market.

UBS upgrades European technology sector

UBS also upgraded European information technology to Attractive following the sector’s recent market correction.

The bank said valuations are no longer excessively stretched, while renewed earnings momentum offers additional support. Rising expectations for AI-related semiconductor capital expenditure are also improving the outlook for European technology companies.

Analyst sentiment has strengthened more broadly. UBS said the breadth of earnings estimate revisions has reached its strongest level in three years.

Meanwhile, global manufacturing PMIs have recovered into the low-to-mid 50s, levels which have historically been associated with the end of corporate earnings downgrade cycles.

Banks and industrials among UBS preferred sectors

UBS maintained its Attractive stance on European equities, with a particular preference for the Eurozone.

The bank favours banks, industrials, consumer discretionary companies, healthcare and information technology, while also highlighting Germany as an attractive market.

Germany’s fiscal support is expected to provide an additional tailwind as increased spending feeds through to economic activity and corporate earnings.

With profit growth accelerating, analyst revisions improving and the earnings recovery spreading across sectors, UBS sees a stronger fundamental backdrop for Eurozone equities heading through the remainder of 2026 and into 2027.

Ajax Resources PLC (AQSE:AJAX) announced the acquisition of a majority interest in the Paguanta silver-zinc-lead project in Chile, a former producing mine with approximately US$32m of historical investment.

Ippolito Ingo Cattaneo, CEO: “We believe Paguanta represents a highly compelling opportunity for Ajax. It is a former producing silver mine in one of the world’s leading mining jurisdictions, benefiting from approximately US$32 million of historical investment and an established historical JORC-compliant Mineral Resource. The global economy is entering a veritable metals super-cycle, driven by electrification, infrastructure investment and energy security, and against this backdrop, silver and copper are particularly attractive commodities for Ajax.” Read more

Cooks Coffee Company Limited (AQSE:COOK) reported a positive trading update for the three months ended 30 June 2026 (“Q1 FY27”) with Group systemwide store sales in the UK and Ireland up 14%. The Group also outperformed the wider UK branded coffee market, increasing its UK store estate by 14.9% against a market-wide outlet growth of 3.5%.

Keith Jackson, Executive Chairman: “We are pleased to report another period of positive trading. We have made a positive start to the new financial year and remain confident in the Group’s opportunities for further growth across both existing and new locations.” Read more

Oberon Investments Group plc (AQSE:OBE) reported record revenues of £11.7m for the year ended March 2026, up 24.7% on the prior year.

Simon McGivern, CEO: “FY26 was an important year for Oberon. Revenues increased by nearly 25% to a record £11.7m and client assets grew to more than £1.4bn. As revenues continue to increase, we expect a growing proportion of that incremental income to translate into earnings. We expect revenues to exceed £14m in FY27.” Read more

The company also raised £1.4m through a share subscription. Read more

Adsure Services PLC (AQSE:ADS) reported final results for the year ended March 2026, with profit before tax up 22.7% to £1m and EBITDA growing 13% to £1.34m, the third consecutive year of growth.

Kevin Limn, CEO: “With these strong foundations in place, we are now setting out an ambitious new chapter for the Group, transforming Adsure into a leading cluster of specialist, purpose-driven professional services businesses across the UK.” Read more

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Gold remained above $4,500 an ounce on Friday, holding onto a powerful weekly advance as a weaker US dollar and efforts by the US Treasury to reduce longer-term borrowing costs strengthened demand for bullion.

The precious metal has risen roughly 4% this week and is heading towards a third consecutive weekly gain. Gold has also advanced more than 11% since the start of August.

At 01:32 ET (05:32 GMT), spot gold gained 0.3% to $4,530.95 an ounce, while gold futures climbed 0.3% to $4,587.11. Silver rose 1.0% to $68.79 an ounce and platinum advanced 1.6% to $1,866.01. The US Dollar Index, meanwhile, slipped 0.1% to 98.77.

Lower Treasury yields strengthen gold’s appeal

Bullion has consolidated above the $4,500 threshold after finally breaking through a level that had proved difficult to overcome during its recent recovery. The move extends a substantial rebound from the late-June low of around $3,942 an ounce.

Developments in US government debt markets have been a major driver of the latest rally. The Treasury announced plans this week to double its buybacks of longer-dated securities to at least $4 billion per operation over the next quarter.

The initiative helped push long-term Treasury yields lower, improving the relative attractiveness of gold.

Treasury Secretary Scott Bessent said on Thursday that the government could expand the purchases further, while arguing that current bond yields do not accurately reflect underlying economic fundamentals.

Lower yields typically support gold because bullion does not pay interest. As returns available from government bonds decline, investors sacrifice less income by holding the precious metal instead.

Dollar decline provides another tailwind

The Treasury-driven decline in yields has also contributed to weakness in the US dollar, providing additional support for precious metals.

A softer dollar makes dollar-denominated gold less expensive for buyers using other currencies and can therefore stimulate international demand.

The US currency was on course to lose more than 0.8% over the week as investors reassessed the appeal of American assets amid concerns over government finances and borrowing costs.

Fed policy remains a potential hurdle

US labour-market figures are also influencing expectations for gold. Weekly unemployment claims declined, suggesting employment conditions remain relatively stable despite July’s unexpected deterioration in hiring.

Attention remains firmly on the Federal Reserve as policymakers balance labour-market resilience against persistent inflationary pressure.

According to CME FedWatch, markets currently see around a 64% probability that interest rates will remain unchanged in September and a 36% probability of an increase.

Any renewed tightening could weigh on gold because higher interest rates increase the returns available from interest-bearing assets relative to non-yielding bullion.

Fed officials have also raised questions about the interaction between monetary policy and the Treasury’s debt-management measures, as efforts to reduce long-term yields could loosen financial conditions while the central bank is still attempting to control inflation.

Iran tensions reinforce safe-haven demand

Geopolitical uncertainty provided another source of support after Bessent said Washington planned to impose the “toughest sanctions” in history on Iran.

The Treasury Secretary suggested that stronger economic pressure could reduce the need for further major military action, although continuing tensions surrounding Iran are maintaining investor interest in traditional safe-haven assets.

ANZ analysts also pointed to broader diversification away from the dollar and US assets as an increasingly important factor behind demand for bullion.

With Treasury measures weighing on yields, the dollar under pressure and geopolitical risks remaining elevated, gold has maintained its position above $4,500 as it heads towards another strong weekly performance.

Oil prices edged lower on Friday as traders took some profits following a climb to one-month highs, while markets assessed Washington’s plans to impose its most severe economic sanctions yet on Iran.

Brent crude futures slipped 0.2% to $93.57 a barrel by 04:11 ET (08:11 GMT), while US West Texas Intermediate crude futures declined 0.4% to $86.50 a barrel.

The modest pullback did little to change the broader weekly picture. Crude remained on course for a second consecutive week of substantial gains as the confrontation between the United States and Iran over the Strait of Hormuz continued. Brent was set to advance by more than 5% over the week.

Washington increases economic pressure on Tehran

US President Donald Trump has threatened a new round of stringent economic restrictions against Iran as Washington seeks to pressure Tehran into accepting a peace agreement.

Trump has also warned countries that continue conducting business with Iran that they could face severe economic consequences.

US Treasury Secretary Scott Bessent reinforced the administration’s position on Thursday, saying Iran would face the “toughest sanctions in history.”

Iran has largely dismissed the threat of additional US measures, while China, one of the largest purchasers of Iranian crude, has also opposed further sanctions.

Scope of additional sanctions remains uncertain

Questions remain over what Washington’s latest measures will contain, particularly because Iranian oil exports are already subject to extensive US restrictions.

The United States is also continuing the naval blockade against Iran that was introduced earlier in 2026.

Nevertheless, the increasingly confrontational rhetoric suggests little immediate prospect of a reduction in Middle East tensions, leaving the oil market exposed to continued disruption across the region.

Hormuz disruption keeps oil risk premium elevated

The Strait of Hormuz remains central to the outlook for crude supplies, with shipping data indicating that commercial traffic is still running at only a fraction of levels recorded before the conflict.

The strategically important waterway has emerged as one of the main pressure points in the confrontation between Washington and Tehran, given its importance to global energy shipments.

Iran has indicated that it will continue to keep the strait effectively closed until the United States complies with the conditions of an interim peace agreement signed in June that has since expired.

With commercial shipping severely constrained and no obvious diplomatic resolution emerging, the risk of prolonged supply disruption continues to support crude prices despite Friday’s modest decline.