Asset Allocation July 31

Strategy Date 31 July 2026 Asset Allocation

Q2 2026 Earnings: Broad Based Acceleration Binky Chadha ▪ Despite the record-high bar set by the bottom-up analyst consensus Chief Strategist (26%), Q2 earnings are beating strongly and robustly. The share of companies beating (87%) is at a record high, while the size of the aggregate beat (7%) remains strong, driven by both sales and margins. Parag Thatte Strategist The analyst consensus has continued to upgrade forward earnings in H2 and 2027 in contrast to typical cuts at this stage. Karthik Prabhu ▪ S&P 500 earnings growth is on track to accelerate sharply from 25% in Q1 Strategist to 33% in Q2, one of the highest ever outside of recoveries from recessions. Growth for the median company is up to 13.8%. Exceptional earnings growth is being driven by both sales growth at a 25-year high and margins Dag Workayehu Strategist rising to a new record.

▪ Earnings growth is very broad based. All sectors are on track to deliver positive growth, with 8 of the 11 tracking in the double digits and 7 seeing an acceleration. MCG & Tech continues to be the major driver, but its contribution to aggregate growth is down notably from 90% a year ago to 57%. The contributions to growth of AI beneficiaries (53%) and the rest (47%) are almost even.

▪ On the back of the solid beats in Q2, the notable pickup in PMIs recently as well as continued outsized growth in Tech, we are raising our S&P 500 EPS estimate for 2026 to $358 (from $342) and for 2027 to $420 (from $390). Our estimates imply growth of 28% in 2026 and 17% in 2027.

▪ The S&P 500 is down -1.0% since the start of the earnings season, in contrast to a typical 2.0% rally, as the rotation out of Tech looks to have dominated, with MCG & Tech stocks down -3.0% and the rest up +1.0% during the season so far.

The bar for earnings was at a record high coming into the earnings season, with the bottom-up analyst consensus looking for growth of 26%, twice the prior record. We looked for slightly higher growth of 29% (Q2 2026 earnings Looking For Growth In The High 20s, Jun 30 2026). Nearly two-thirds of the way through, with 303 companies having reported (66% of market cap, 68% of earnings), we note our takes below.

Very strong beats of a record-high bar ▪ Strong earnings beats. A remarkable 87% of companies have beat on earnings, well above the historical average of 74% and on par with the record high of the post-pandemic recovery. Such high breadth is particularly striking given the extremely high bar coming into the earnings season. Earnings are

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beating in aggregate by 7.0%, well above the historical average of 4.9% and in the upper half of the elevated range of the past 3½ years. The median company beat by 5.3%, also well above the typical 3.5%. Beats have been broad-based across sectors, led by Health Care, Financials and Consumer Cyclicals.

▪ Sales beat at a 5-year high. The breadth of sales beats (77%) is running well above its historical average (59%) and near its highest other than during the 2020-21 pandemic recovery. The size of the aggregate beat (3.1% vs 0.5% historically) jumped to its highest in 5 years. The beat by the median company (1.5% vs 0.6% historically) is also extremely strong.

▪ Margin beats very strong. Margin beats remained well above average in Q2. The breadth of margin beats rose sharply to 80% (vs 74% historically), as did the beat by the median company (54bps vs 35bps historically), while the aggregate beat (55bps vs 44bps historically) declined modestly but stayed above average.

Exceptional broad-based acceleration in growth ▪ Earnings growth is tracking a remarkable 33%. Companies that have already reported so far have seen their earnings grow by 28.2% yoy. If companies that are yet to report beat by the…