Markets Broaden on Firm Growth and Earnings Momentum

1. Earnings and Indicators Continue to Improve Corporate fundamentals remain supportive as earnings season progresses, with 58% of the S&P 500 now reported and results tracking strong growth. Earnings growth is running at 13.6% year over year, while revenues are up 9.3%¹, reinforcing the view that profit momentum remains intact and broad-based.

On the macro front, activity data is also turning more constructive. Services have remained a consistent source of strength over the past two years, with ISM Services supported by continued consumer spending on travel, dining, and experiences. Importantly, manufacturing is now beginning to reaccelerate. Chicago PMI rose to 54 last week, while ISM Manufacturing and S&P Global Manufacturing came in at 52.6 ² and 52.5³, respectively, with all three firmly in expansionary territory. While the precise number matters less than the direction, the shift back into expansion signals improving breadth in the growth outlook. Consumer demand remains a key anchor, with Chase credit card spending up 5%, underscoring that consumers continue to spend.

2. Equity Market Rotation and Broadening Leadership The defining feature of equity markets in 2026 has been a clear rotation beneath the surface. Leadership has shifted away from prior winners, with notable pullbacks in bitcoin, precious metals, and software, while more cyclical areas of the market have begun to reassert themselves. Industrials, financials, and consumer discretionary stocks are seeing renewed interest as investors position for a growth backdrop that continues to exceed expectations.

This broadening is evident in performance dispersion, with the equal-weight S&P 500 up 4.76% year-to-date versus just 1.08%⁴ for the market-cap-weighted index, highlighting improved participation beyond the largest names. The underlying driver remains stronger-than-expected economic growth, which tends to favor cyclicals and value-oriented segments.

3. CapEx Spend One near-term overhang has been the scale of AI-related capital expenditures, with the Mag 7 spending roughly $401 billion last year and on track for approximately $700 billion this year. Recent developments suggest these companies are not merely maintaining elevated capex levels but accelerating them further. Alphabet has decided to raise an additional $15 billion in the debt markets, despite ample free cash flow. That said, the capex surge is creating clear dispersion within mega-cap technology. Companies such as Microsoft, Alphabet, and Apple are still generating growing free cash flow, while others, including Amazon, Meta, and Oracle, are seeing more meaningful near-term pressure. This divergence is a key source of dislocation within technology. While this level of capex investment has weighed on near-term stock reactions, it reinforces that AI is a durable, long-cycle theme rather than a passing trend, even if markets continue to digest the magnitude and timing of the returns.

4. The AI Food Chain AI investment is increasingly cascading beyond technology and into the broader industrial ecosystem. Utilities and power-related industries are facing a step-change in demand, with electric growth expected to rise from roughly 3% in 2024 to approximately 11% over the next decade, largely driven by AI and data-center expansion. To meet this demand, power companies are expected to invest roughly $1.1 trillion through 2030.⁵ While small modular nuclear reactors represent a potential avenue, their total addressable market remains relatively limited at 10 billion, suggesting the primary beneficiaries will span a wider range of energy, infrastructure, and equipment providers.

Data infrastructure represents another major beneficiary. Data center-related capex is expected to total approximately $7 trillion through 2030⁶, with construction spending projected to rise from $261 billion to $460 billion over the next four years. Supporting infrastructure, including cooling systems and server racks, is also scaling rapidly, with spending expected to increase from roughly $62 billion to nearly $100 billion by 2030.

5. Productivity Gains Beyond Capex, AI is already translating into measurable productivity gains. Software development productivity is now expected to increase 30–45% this year, up from roughly 20–25% just nine months ago. A Bloomberg survey estimates that AI tools will account for 50% of new code written over the next three years, up from just 4% today⁷, driving both opportunity and disruption within software, where clear winners and losers are likely to emerge.

Real-world adoption metrics reinforce the magnitude of these gains. Meta reported a 30% increase in output per engineer in the fourth quarter⁸, GitHub Copilot users completed tasks 55% faster⁹, Barclays achieved a 20% productivity improvement, translating into $132 million of cost savings, and Leidos reduced testing time by 30% through AI deployment.¹⁰ In addition to technology and industrials, AI-driven efficiency gains are also poised to benefit sectors such as financial services and healthcare, underscoring the breadth of the opportunity set across the economy.

6. Upcoming Earnings and Key Macro Catalysts The coming week represents another important inflection point, with roughly 16% of the S&P 500 set to report earnings, adding further clarity around the durability and breadth of profit growth. Alongside earnings, the macro calendar is particularly dense. Retail sales midweek will offer a timely read on consumer momentum, while the fourth-quarter Employment Cost Index will be closely watched given its importance to the Federal Reserve’s assessment of wage-driven inflation pressures. CPI and the nonfarm payrolls report round out the week.

7. Fixed Income U.S. Treasury yields edged lower across the curve last week, a modest weekly move that belied meaningful intraweek volatility. The market initially sold off on Monday after the January ISM Manufacturing Index exceeded expectations, prompting a brief repricing of growth and policy assumptions. Sentiment reversed sharply on Thursday as a trio of softer than expected labor market releases—Challenger Job Cuts, weekly initial jobless claims, and JOLTS Job Openings—reinforced a cooling labor demand narrative. By Friday’s close, the 2, 10, and 30-year yields were lower by 1, 1, and 2 basis points, respectively. Credit markets weakened last week, with spreads drifting wider across both investment-grade and high-yield sectors. Investment-grade spreads widened 3 basis points to +107, while high-yield spreads moved 10 basis points wider to +335. In the municipal market, tax-exempt yields were lower by 2-9 basis points across the curve.¹¹

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Return for Selected Indices¹²

1. Bloomberg: As of February 9, 2026 ↩︎
2. ISM: As of February 3, 2026 ↩︎
3. S&P Global: As of February 9, 2026 ↩︎
4. Bloomberg: As of February 8, 2026 ↩︎
5. Barclays: As of December 23, 2025 ↩︎
6. McKinsey & Company: As of April 28, 2025 ↩︎
7. Bloomberg: As of December 10, 2025 ↩︎
8. Meta Earnings Call: As of January 28, 2026 ↩︎
9. J.P. Morgan: As of February 3, 2026 ↩︎
10. Leidos Earnings Call: As of August 5, 2025 ↩︎
11. Bloomberg: As of February 8, 2026 ↩︎
12. Source: Bloomberg. As of February 8, 2026 ↩︎

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