Earnings Driving Returns

1. Stronger Earnings Than Expected. As we reach the halfway mark of the Q2 earnings season, data across industries is pointing to a material beat versus expectations. With 32% of S&P 500 companies now reported, revenue is up 5.3% and earnings per share (EPS) have surged 8.3%. This significantly overshoots the initial 5% EPS growth consensus heading into the quarter and suggests that corporate fundamentals are on a stronger footing than anticipated. If this momentum sustains through the back half of reporting, full-quarter EPS growth could settle in the 8–10% range, underscoring business resilience in a high-rate, cautious macro environment. One of the more focal points that we’ve had in the past few weeks is how earnings would upside surprise not only for 2Q but also for the full year.  Estimates are on the rise. Stocks follow profits on the way up and down. Earnings revisions will be revised higher, and that is supportive of a higher market and/or specific stocks and sectors. 

What stands out isn’t just the top-line strength, but the margin performance and capital discipline supporting it. GE Aerospace led with adjusted EPS of $1.66, up 21% y/y, while IBM reported EPS of $2.80, also up 15% y/y, coupled with gross margin expansion to 60.1%, beating estimates by nearly 2 points. These figures reflect how companies are not only maintaining demand but optimizing operations to defend profitability. At Freeport-McMoRan, unit copper costs dropped 35% y/y, giving the company earnings flexibility even as production volumes declined.

Companies like GE Aerospace and IBM are not only exceeding estimates, they are doing so while investing in future growth, improving product mix, and navigating macro headwinds with clear strategic focus. GE raised guidance across EPS, FCF, and operating profit, citing improved visibility into aftermarket services and pricing leverage. Freeport-McMoRan combined disciplined cost management with commodity upside to deliver 17% EPS growth despite lower volumes. These results suggest that many companies are entering a new phase of durable performance characterized by smarter cost structures, targeted capital investments, and AI-driven productivity gains.

2. Big Banks Outperform Large-cap banks came into earnings facing skepticism about deal flow, trading volatility, and rising capital requirements. Yet J.P. Morgan (JPM), Citigroup (C), and Wells Fargo (WFC) all posted beats, marking only the second time in 66 quarters that every major U.S. bank has surpassed estimates. It suggests that the traditional drivers of banking profits (consumer credit, institutional flows, and deposit growth) are holding up remarkably well despite rate pressures.

Morgan Stanley provided a compelling look at franchise durability. Their EPS climbed 17% and revenue rose 11%, bolstered by fee-based flow strength and a retail platform that continues to scale post–E-Trade integration. Traders had their second-best quarter ever, with equity sales and prime brokerage lifting market share. Meanwhile, Goldman Sachs broke records in equity trading and M&A advisory, with advisory revenue surging 71% and its wallet share is now top-3 globally. GS is investing in AI while trimming headcount—leveraging technology to drive cost savings and reposition senior talent in strategic locations.

Wells Fargo’s consumer banking business came above expectations during this quarter’s reporting, and grew 2% y/y, showing that its core retail franchise remains strong and aligned with rising consumer demand. It also outperformed in wealth management net revenue, and the bank increased branch-based financial advisors by 10% y/y, positioning itself to drive deeper client engagement and higher fee-based flows. Importantly, CEO Charles Scharf emphasized that the lifting of the asset cap opens the door for strategic redeployment of balance sheet capacity.

Most impressive – is that all large-cap banks beat earnings in 2Q for the second time in 66 quarters.  Worth noting.

3. Onshoring/Reshoring: Alive and Well The onshoring and reshoring thesis continues to gain traction, and it’s now showing up tangibly in the earnings and guidance of key industrial players. GE Vernova’s (GEV) record $175 billion backlog and elevated book-to-bill ratios speak volumes. These are not hypothetical orders; they’re funded demand streams tied to infrastructure, clean energy, and industrial modernization, much of which is being deployed within U.S. borders.

GE Aerospace announced a $2 billion capital investment across its global MRO facilities and supply chain, aiming to grow internal capacity by 40% by 2030. Reshoring has moved beyond the headline; it’s embedded in supply contracts, government procurement, and corporate planning across sectors. Expect continued policy support and investor interest in manufacturers, suppliers, and logistics firms tied to domestic expansion themes.

4. Aviation’s Recovery GE Aerospace’s performance this quarter puts a spotlight on aviation’s resurgence, with CES revenue rising 30% year-over-year, its strongest print after two quarters of mid-teens growth. The company noted that engine demand is picking up, supply chains are stabilizing, and external shop visits will become a major lever for recurring revenue. GE now expects 30% of shop visits to be external by 2030, which gives the business more pricing power and predictability. Flight Deck technology stood out as a catalyst for operational improvement. AI tools enabled GE to cut inspection time in half, accelerate lead times by over 30% in Brazil (its highest-volume MRO site), and drive 10% sequential growth in supplier inputs. These efficiencies, alongside a 4% increase in global flight departures, are feeding a flywheel effect in aftermarket services and parts logistics.

But to put into perspective, this is a lot to do with Boeing getting their act together – finally.  Production is now 38/month in the 737 Max – which will likely head higher by year-end to at least 42/month.  And the 787 production also stands to increase to 7/month by year-end as well.  Not only is this positive for BA, but the entire supplier base – including the now well-executed GE.

5. Cloud and AI Commitment The enterprise cloud landscape shows no signs of slowing, as Alphabet’s 31% y/y cloud revenue growth this quarter demonstrated. What’s even more striking is their commitment to infrastructure investment, allocating nearly $57 billion (two-thirds of capex) toward servers and AI technologies. This builds on the cloud-AI synergy we’ve seen from Microsoft, Amazon, and others, where compute scalability is driving operational efficiency, cost savings, and software-led transformation across sectors.

IBM’s $7.5 billion generative AI business is expanding fast, even as software revenue came in slightly below expectations. The company’s beat in consulting and infrastructure reflected resilience, while adjusted gross margins of 60.1% (up 2.3 points) show how AI and automation are beginning to lift profitability.

6. Copper Confidence Freeport-McMoRan posted a strong beat, fueled by copper fundamentals that remain solid despite macro turbulence. Adjusted EPS of $0.54 beat by nearly 20%, while revenue rose 14% on improved pricing and cost controls. Copper unit net cash costs fell to $1.13/lb, a 35% y/y decline that allowed FCX to maintain margins even as volume dipped. Most importantly, the company raised copper guide by 10% in the second half of 2025. Every 10 cents/lb in copper equates to $200 million in EBITDA for FCX. This will help not only sales but margins as well. 

The copper story is more than supply-demand; it’s a barometer for industrial progress. Electrification has been a huge theme for us (see last week’s report)- Grid modernization, EV infrastructure, and clean energy require copper, and FCX’s revised guidance (H2 copper forecast raised 10%) signals confidence in demand traction. With realized prices up and inventories at record lows, FCX is poised to benefit from both cyclical and structural support. Investors should also note the margin premium copper now commands—$1.25/lb over other segments—a reflection of its elevated strategic value.

7. Fixed Income Last week, the U.S. Treasury curve flattened. Treasury yields initially fell across the curve amid market concerns of the Fed’s independence; however, they reversed over the latter half of the week following stronger-than-expected initial jobless claims and the release of new trade deal announcements. By Friday’s close, the 2-year yield was higher by 5 basis points, while the 10-, & 30-year yields were lower by 3 & 6 basis points, respectively. The market’s focus now shifts to the FOMC policy rate decision & Treasury quarterly refunding announcement on Wednesday & PCE on Thursday.

Over the week, investment-grade spreads tightened 5 basis points to +119, and high-yield spreads narrowed 14 basis points to + 324. Both investment-grade and high-yield credit spreads are approaching their year-to-date tightest levels. Investment-grade spreads currently stand 9 basis points above their YTD lows, while high-yield spreads are 28 basis points wider. U.S. credit ratings improved last week as the main rating agencies issued 30 upgrades compared to 20 downgrades. The Consumer Discretionary sector accounted for the majority of the downgrades, while Financials led with the most upgrades.

Tax-exempt yields were lower across the curve by 3-9 basis points last week. On Friday, August 1st, approximately $29 billion in principal will be redeemed from maturing and called securities—marking the largest principal redemption day of the year and the second-largest when accounting for combined principal and interest payments. The large redemptions have been met with a similarly large amount of issuance, as July supply was 43% more than last July, and YTD issuance is 21% ahead of last year’s record-setting pace. This supply mix has skewed longer than historical, which has led to the mid-to-long end of the municipal curve to provide strong investment opportunities with 5% coupons nearing par.

The Week Ahead.

Earnings – Monday: RVTY, EPD, WU, CDNS, WWD, EXEL Tuesday: CARR, PYPL, WHR, SOFI, UPS, CBRE, PH, GLW, NSC, JCI, HRI, WGS, AMT, BYON, RGEN, MRK, WELL, PII, HUBB, RCL, NUE, WM, SYY,UHS, JBLU, BA, LAD, ARCC, ECL, SBUX, BKNS, VRNS, TDOC, CZR, STX, MDLZ, STX Wednesday:  AXTA, HUM, BG, FTAI, VFC, EVR, FNMA, HSY, ADP, GEHC, TER, ETSY, VRSK, CAR, IEX, PPG, KHC, EXE, MO, ENTG, AEP, TW, SF, WING, BXP, ODFL, ITW, GNRC, WSO, REG, ETR, VRT, HESM, FTV, ESS, META, WEC, ALGN, FFIV, HOLX, CFLT, DXCM, WAY, TTMI, GH, WDC, TMDX, QCOM, CHRW, LCRX, ALPD, FICO, CSL, AUR, COMP, PI, PTC, CTSH, SFM, HOOD, MGM, F, MSFT, CVNA, EQIX, EBAY Thursday: APD, SHAK, ALB, NCLH, BMY, MAS, CVS, XRX, XRX, BAX, GTLS, AME, APG, RBLX, BIIB, ATI, ALGM, SPGI, CI, EOSE, CMCSA, ZPO, PBF, ABBC, BLDR, PWR, FE, HII, GNW, KKR, XYL, AWK, ALL, MA, DINO, CMS, MAA, IP, EXL, WCC, TYL, FLS, EXC, VAL, OWL, VTR, VICI, CRS, EME, AR, BTU, PCG, GWM, MOD, HST, INVH, PPL, PRU, VMC, MPW, PSA, UDR, EXR, SO, AVB, EIX, RMD, SYK, RKT, FSLR, ILMN, RIOT, BOOT, KLAC, PCOR, ROKU, MPWR, ENVX, BE, AMZN, RDDT, TREE, LIDR, MSTR, LPLA, FND, NET, AAPL, CLX, AJG, WSC, COIN, Friday: IR, AVTR, MRNA, EMN, TROW, KBM, TROW, REGN, CBOE, CL, FLR, CNK, MTD, LIN, ES, MTZ, XOM, MIR, HUN, AES, AEE, D, BEN, CHD, ARES, CVS, CPT, GWW, LYB,SATS

Stephanie Link’s TV Schedule:

Return for Selected Indices^[1]

Sources

^[1] Source: Bloomberg. As of July 28, 2025.

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