Stocks grind up ahead of earnings, easyJet soars on takeover bid

Stocks keep grinding higher with European shares at records this morning on the back of a positive week.

Asian shares slipped a bit as attention turns to Samsung’s earnings tomorrow, while US futures are higher after a solid holiday-shortened week. A slightly light payrolls report eased rate hike fears, while ships are transiting the Strait of Hormuz, keeping crude prices down. The FTSE 100 has cleared its way above 10,700 for a 4-month high.

Deals aplenty: Lockheed Martin will acquire naval group Ultra Maritime in a $3.5 billion deal, while easyJet shares leapt 10% after it agreed to a £5.5bn bid from US private equity group Castlelake. Yet another example of UK plc on sale in the bargain bins. It might not clear the regulators though. Meanwhile, ITV is selling its Media and Entertainment business to US-owned Sky for £1.6bn.

Now we look to earnings. Q2 was a bumper quarter for the stock market, but we’ll find out soon enough if the optimism over earnings is justified. Samsung reports tomorrow, the first of the AI tests. Earnings season proper doesn’t start on Wall Street until 14 July, when Citigroup and JPMorgan report, though this week we have PepsiCo and Delta Air Lines. Shell reports its Q2 trading update tomorrow.

Although we’ve seen a wobble in the AI leadership space in June, amid some hefty internal rotation the major averages finished the holiday-shortened week with solid gains. The S&P 500 finished +1.8% higher at 7,483, the Dow Jones added 2% to 52,900, a new all-time high, and the Nasdaq rallied 2% despite fears about AI valuations.

Looking at earnings for the S&P 500, the consensus sets a high bar – a second consecutive quarter of earnings growth above 20% is expected. Unusually analysts have increased their earnings forecasts over the quarter – they tend to revise them lower into the reporting season. Now they expect earnings growth of around 25% – well above the 18.8% expected at the end of Q1. Deutsche Bank estimates earnings growth could approach 30% this quarter, led by a 148% growth in profits for semiconductors.

According to FactSet, 111 S&P 500 companies have issued EPS guidance for Q2 2026, of which 48 have issued negative EPS guidance and 63 have issued positive guidance. The number positive guides is well above the 5-year average of 44 and the 10-year average of 41. Ten of the eleven sectors are forecast to report year-over-year EPS growth, led by Energy, Information Technology, and Materials, whilst Health Care is the only sector predicted to report a year-over-year decline in earnings, says FactSet.

Earnings growth has been central to the market’s broad advance this year. 10yr Treasury yields are up 50bps from the lows of late February while the S&P 500 has advanced around 600pts, or more than 8%, in that time. Expectations for earnings growth are so strong that there we’re in a kind of bubble – the market seems priced for perfection. A drop in Treasury yields after the softer-than-expected nonfarm payrolls report was a lift but I think this a market that is more dependent on earnings delivering very high expectations than on short-term interest rates. I had a look here at why I think the market was too quick to see the NFP as a dovish read. We saw a wobble as markets readjusted to the hawkish read from Kevin Warsh’s first FOMC and could do so again should as the July FOMC meeting approaches.  Minutes from the June meeting are released this week. The pessimistic outlook would be that the market is approaching a point where the AI capex that is driving the earnings growth can no longer be sustained. Peak earnings plus a Fed that could spoil the party could see the market struggle to sustain momentum.