Jefferies Greed & Fear Data factories and free cash flow

Data factories and free cash flow Uluwatu Estate GREED & fear is on holiday. Still there is no doubt that, in the absence of renewed turmoil in the US bond market or renewed tensions in the Persian Gulf, the US stock market is all about earnings. The latest earnings season has again been extremely positive, as highlighted in the new report by Jefferies’ global head of quantitative strategy, Desh Peramunetilleke (see Jefferies research USA Quant: AI Struggles and 2Q Results, 7 August 2026). It noted that, with almost 80% of MSCI USA universe having reported their 2Q26 earnings, 85% of them beat their earnings expectations in 2Q26, though down from 86% in 1Q26 (see Exhibit 1). While S&P500 2Q26 EPS rose by 40.6% YoY, the highest post-global financial crisis growth excl. Covid (see Exhibit 2).

Moreover, the forecasts for the current quarter also remain robust. The LSEG I/B/E/S consensus data as of 7 August shows that S&P500 3Q26 earnings are expected to rise by 28.6% YoY, up from 16.1% growth expected last October. The IT sector has the second-highest forecast 3Q26 earnings growth of 61.1%, up from 22.3% last October (see Exhibit 3). All 12 sub-industries in the IT sector have higher forecast earnings than a year ago, with the semiconductor and semiconductor materials & equipment sub-industries having the highest earning growth (126.2% and 62.6%, respectively). If these two sub-industries are excluded, the forecast growth rate for the IT sector declines to 22.3%.

In addition, consensus now expects S&P500 2026 EPS growth to be 26.1%, up from 24.4% a month ago, according to Jefferies’ Quant team. While the S&P500 ex-AI 2026 EPS growth estimate has also increased to 14.9% from 14.0% at the end of June (see Exhibit 4).

Exhibit 1: MSCI USA – Trend of EPS and sales beats

2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25 3Q25 4Q25 1Q26 2Q26 EPS beats Sales beats Source: Jefferies, FactSet

Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts at the end of this report. 1 *Jefferies Hong Kong Limited

Exhibit 2: S&P500 – Quarterly YoY EPS growth trend 118 80

4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 4Q19 2Q20 4Q20 2Q21 4Q21 2Q22 4Q22 2Q23 4Q23 2Q24 4Q24 2Q25 4Q25 27F 2Q26E

Exhibit 3: S&P500 3Q26 forecast earnings growth revisions 97.3 100 (%YoY) Current 1 October

Energy Utilities S&P 500 Comm Svcs Materials Cons Staples Cons Disc Financials Industrials Real Estate Info Tech Health Care

Exhibit 4: S&P500 EPS growth: Current consensus forecasts vs End June 2026 forecasts

30 (%) S&P500 (with AI) S&P500 (without AI)

0 Current End June Current End June 2026F 2026F 2027F 2027F Note: Bottom-up aggregated with free-float adjustment using the current universe. Source: Jefferies, FactSet

13 August 2026 2 Please see important disclosure information at the end of this report.