Morgan Stanley US equity strategist Michael Wilson indicates increasing signs that the seasonal weakness in earnings revisions breadth has concluded, suggesting the commencement of the next upward phase. Despite recent price action being affected by factors such as Federal Reserve policy guidance and the US federal government shutdown, Wilson views these as temporary obstacles on the path to a robust 2026, propelled by earnings growth.
According to Wilson, the current earnings season has resulted in significant performance and earnings estimate dispersion. However, he notes incrementally positive developments at the index level. He highlighted that the median stock is experiencing its best earnings per share (EPS) growth in four years, and the S&P 500 revenue beat rate is double its historical average, signalling an accelerating earnings recovery and firming pricing power.
Wilson emphasised that over the past several trading days, there have been clearer indications that the seasonal weakness in earnings revisions breadth is subsiding, with the critical guidance gauge now embarking on its next leg higher. Specifically, this measure reached a low of 6 per cent on 21 October and has since risen to 11 per cent. At the industry level, recent improvements are being driven by sectors including software, transport, energy, automotive, and healthcare.
