What markets need from earnings season: Insights from Jurrien Timmer - July 13, 2026

High expectations raise the bar

Earnings estimates have followed an unusual path in recent quarters. Rather than drifting lower ahead of reporting season, as is often the case, expectations have continued to rise. Earnings growth expectations are now approaching 23%, creating a higher hurdle for companies to clear.  Semiconductor companies have been a major contributor to that strength. He observed that semiconductor earnings have roughly tripled over the past year. At the same time, he suggested that exceptionally strong expectations could make positive surprises harder to achieve, even if earnings remain healthy. Against that backdrop, attention may be focused not only on reported results but also on company commentary regarding future growth plans and capital spending.

A healthier market breadth story

Many of the largest technology companies have largely moved sideways since late 2025 while other areas of the market have begun to contribute more meaningfully to returns. Rather than relying on a handful of stocks to drive gains, a wider range of companies is participating in the market advance. Jurrien noted that approximately 68% of companies are trading above their 200-day moving averages, a sign of relatively broad participation. He also pointed to the improving performance of equal-weighted indexes relative to traditional cap-weighted benchmarks. Taken together, these trends suggest that market gains are being supported by a broader group of companies instead of becoming increasingly concentrated in a small number of names.

Earnings are driving the market

According to Jurrien, earnings growth, rather than expanding valuations, has been the primary driver of recent market performance. Earnings growth has been running at more than 20% year over year while valuations have remained relatively flat over the same period. Jurrien noted that earnings-driven market gains are generally preferable to gains driven primarily by valuation expansion. 

Capital allocation trends are changing

For much of the past decade, share buybacks played a significant role in reducing the number of publicly traded shares and returning capital to shareholders. Today, however, more companies are directing cash toward investment projects while IPO and secondary issuance activity has increased. Buybacks have declined to roughly 31% of earnings, while borrowing has increased as companies invest in areas such as AI-related infrastructure and capital expenditures. At the same time, equity issuance has accelerated as more businesses seek access to public markets. This shift is not necessarily negative. If companies can generate attractive returns on those investments, it may potentially positively impact shareholders. However, he suggested that the key question is whether rising capital expenditures ultimately translate into meaningful returns over time.

Watching rates and inflation

Interest rates remain an important consideration for markets. The U.S. 10-year Treasury yield has moved into a range that could become more challenging for equities. In his view, yields between approximately 4.5% and 5% may make it harder for stock valuations to expand because bonds become increasingly competitive with equities for investor capital. He also discussed the inflationary effects associated with the ongoing AI buildout. Significant investment spending can create inflation pressures in the near term, even if those investments are intended to support future productivity and economic growth. Looking ahead, he suggested policymakers are likely to remain focused on price stability while balancing the objective of supporting longer-term economic growth.

Looking beyond the AI trade

Although AI-related investments continue to attract significant attention, diversification remains an important consideration. Rather than relying exclusively on AI-driven opportunities, Jurrien pointed to areas of the market that may offer lower correlations to the dominant technology theme. These include equal-weighted equity strategies, international developed markets and select value-oriented opportunities. One area he highlighted was European banks. He noted that European banks return a significant portion of earnings to shareholders through dividends and buybacks. He also pointed to their relatively low correlation with the Magnificent Seven stocks, making them a potential diversifier within a broader portfolio.

What investors may be watching this earnings season

One of the most important questions, according to Jurrien, is how the benefits of AI begin flowing through the broader economy. In addition to monitoring spending plans among large technology companies, he said he will be watching how businesses across sectors are adopting AI and whether those investments lead to improvements in productivity and profit margins. While some early signs are emerging, he noted we’re still waiting to see how broadly those benefits can scale.

Conclusion: Testing the strength of the earnings story