J. Safra Sarasin: US Equities – An Earnings Season to Remember
3 SEPT, 2026
By Wolf von Rotberg from J. Safra Sarasin
With Nvidia's excellent second-quarter figures, earnings season is slowly drawing to a close. Nvidia alone contributed a further 3.2 percentage points to the index's year-on-year growth, becoming the single largest contributor to S&P 500 EPS growth in the second quarter (excluding the one-off effects of Alphabet and Amazon).
With 91% of US companies having reported, second-quarter results have exceeded all expectations. 81% of companies beat the estimates set before the earnings season began, and year-on-year EPS growth rose to 34.2%. This is the highest beat rate since the end of the pandemic and the highest year-on-year EPS growth rate ever recorded, with the exception of post-recession recovery phases.
Support for the index's earnings growth extended well beyond the AI sector alone. Several factors explain this particularly favorable environment for US earnings, although some of them are likely to fade in the coming quarters. While maintaining an overall constructive view on equity markets, we believe that peak earnings growth is now behind us, with the pace of growth likely to moderate in the quarters ahead.
1) With oil and gas price growth slowing, support from the energy sector should fade
The 150% year-on-year increase in energy sector EPS in the second quarter contributed over 5 percentage points to S&P 500 EPS growth last quarter. The sharp rise in energy sector earnings was, of course, driven by the surge in US oil and gasoline prices that developed in response to the war in Iran and the resulting closure of the Strait of Hormuz.
As prices have retreated from second-quarter levels, this positive contribution has begun to weaken. In addition, the comparison base for year-on-year growth will be less favorable, since gas prices had already risen in the third quarter of 2025. Finally, recent data and statements from both Iranian and US sources suggest that traffic through the Strait has increased. A renewed full closure of the Strait now appears unlikely, which implies downside risks for oil and gas prices rather than upside risks.
2) Net financial charges are set to rise after the sharp decline of recent years
Net financial charges for the US corporate sector have fallen to 20-year lows. This dynamic is set to change, driven by higher debt issuance.
National accounts data show that net interest paid by the entire US corporate sector (including the financial sector) turned negative in the second quarter: overall, the US corporate sector is therefore recording positive net financial income. This has happened only once before, in 2004.
Excluding the financial sector, net financial income returns to negative territory — that is, companies are paying more interest than they receive. However, in dollar terms the figure remains close to its 20-year low, and as a share of pre-tax earnings it stands at its lowest level ever recorded.
It is striking that the sharp decline in net financial charges in recent years occurred alongside one of the steepest interest rate hiking cycles on record. This was only possible because: i) cash-rich technology companies have benefited on a net basis from higher rates, and ii) the exceptionally low rates of 2020 and 2021 allowed companies to pre-fund much of their required issuance before the rate spike in 2022. As a result, corporate bond issuance dried up in 2022 and has not returned to previous record levels. Recently, however, issuance volumes have started rising again, with around $800 billion having come to the US market since the start of the year.
Over $250 billion in new debt has been issued by US hyperscalers, which are increasingly turning to leverage to fund data center construction. As hyperscaler capex spending is set to increase further and weigh on free cash flow, bond issuance volumes are likely to remain elevated in the coming quarters. We therefore also expect net financial charges to rise, with the cost of debt driven up both by higher leverage levels and by rising bond yields.
3) Hyperscaler depreciation is set to increase
A key driver behind the recent rise in earnings is purely arithmetic. A dollar invested by a hyperscaler in chips or infrastructure is depreciated over time, so its impact on earnings is spread across several years. That same dollar, however, is recognized immediately as revenue and profit in the income statement of the chip or infrastructure manufacturer. Over time, this positive effect on aggregate index-level earnings reverses. Today's heavy capex spending will translate into heavy depreciation tomorrow — a dynamic set to become increasingly visible in hyperscaler results over the coming quarters.
Accelerating this depreciation process is the rising share of hyperscaler capex allocated to chips, which has grown in step with semiconductor prices. Since chips are generally depreciated over three to five years, while other hardware assets such as buildings and power infrastructure are depreciated over seven to ten years, the increase in depreciation will arrive sooner rather than later. Assuming 60% of capex is depreciated over five years and the remaining 40% over ten years, we estimate that hyperscaler depreciation will rise from 8% of sales in 2025 to 22% in 2030.
4) US dollar support has faded
Finally, the boost to year-on-year EPS growth from the weaker dollar in the first half of 2025 should be fully out of third-quarter 2026 results. This year's dollar strengthening has begun weighing on consensus US earnings estimates and should continue to do so, removing a further factor that has supported US earnings growth in recent quarters. Interest rate differentials suggest that a sharp, immediate weakening of the dollar is unlikely. This implies that, in the near term, the currency contribution should be neutral at best.
