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Solid U.S. economic growth and Federal Reserve rate cuts have boosted corporate earnings and profit margins, lifting U.S. stocks and underpinning our overweight. We think this will keep playing out in Q4 earnings results. We see three themes: a further narrowing of the earnings gap between the “magnificent seven” stocks and other sectors; mega forces supporting cyclical sectors; and AI-led productivity gains potentially offsetting typical earnings downgrades.
The U.S. corporate earnings season is key after the S&P 500 posted a third straight year of double-digit returns in 2025, while international markets from Spain to South Korea also delivered strong results. The AI buildout and easing tariff concerns kept economic growth resilient, helping U.S. earnings beat expectations in the third quarter, as we expected. We think earnings can keep delivering, partly as the U.S. stocks driving earnings growth broaden out.
The gap between the magnificent seven mega cap stocks like Nvidia and the rest of the S&P 500 is narrowing as the other 493 see earnings improve – the first theme we’re watching (see the chart below). Yet the magnificent seven are still delivering strong earnings growth – and have consistently beat expectations in recent years, according to Bloomberg data, so that gap may not narrow as much as the consensus implies.
We still prefer tech broadly as earnings growth looks healthy and poised to broaden, both within the U.S. and globally. S&P earnings and profit margins have also proved more resilient to tariffs than many investors expected. Consensus expectations for the magnificent seven have been revised upward to show 20% earnings growth in the fourth quarter versus a year ago and then holding up at 19% in 2026, according to Bloomberg data. That compares with 6% for the other S&P 493 in the fourth-quarter and 15% in 2026.
Such earnings strength is why U.S. tech stocks depended less on investors pricing in higher valuations for gains last year relative to Europe and other regions. From the U.S. “reciprocal tariff” lows in April, the MSCI USA slightly outperformed the MSCI index of global stocks excluding the U.S. in 2025 and outperformed the same index in local currency terms by six percentage points, according to LSEG data.
Second, mega forces and lower Fed policy rates are helping boost cyclical sectors linked to stronger growth, like industrials and materials. This reinforces how we are not in a typical business cycle and mega forces are trumping the traditional macro in driving returns – one of our 2026 Global Outlook themes. Sectors including industrials and materials sit at the intersection of these mega forces: the construction and energy required in the AI data center buildout; the power grid upgrades and infrastructure investment in the energy transition; and increased defense spending tied to geopolitical fragmentation.
Our third theme: Potential productivity gains from AI could break the usual pattern of earnings estimates typically starting high and being revised down as the year progresses. We like financials in both the U.S. and Europe, with the U.S. benefitting from stronger dealmaking activity and lighter regulation. We find that financials is one of the sectors talking the most about AI productivity benefits in earnings calls.
The healthcare sector is a laggard that we think is ripe for potential productivity improvements and innovation, with 80% of U.S. healthcare companies guiding earnings expectations higher, FactSet data show. We’re closely watching earnings for evidence of AI-related productivity gains and new profit pools forming.
We stay overweight U.S. equities and pro-risk on the AI theme. We eye opportunities in sectors beyond tech like healthcare that benefit from AI innovation and see mega forces supporting some key cyclical sectors like industrials.
Wei Li, Managing Director, is the Global Chief Investment Strategist at BlackRock Investment Institute at BlackRock Inc.
Carrie King, Global Chief Investment Officer, Fundamental Equities – BlackRock, Bruno Rovelli, Chief Investment Strategist for Italy – BlackRock Investment Institute, and Natalie Gill, Portfolio Strategist – BlackRock Investment Institute, contributed to this article.
Disclaimer
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
© 2026 BlackRock Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. This article first appeared January 12, 2026, on the BlackRock website. Used with permission.
Image: iStock.com/tadamichi
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