Global equities are drawing support from a solid 2Q US earnings season and ongoing momentum in a narrow cohort of market leaders, even as investors weigh tariff effects, firmer positioning and a slower growth backdrop. The tone from corporate results is resilient at headline level, with margin discipline and early signs that large-scale AI investment is feeding through to revenues. At the same time, breadth remains an issue, Europe’s upgrades are scarce outside financials, and companies are flagging uncertainties that are likely to show up more fully from 3Q2025 onwards.
“The second quarter US earnings season, now entering its final stages, looks solid at an aggregate level, with S&P 500 companies growing earnings by around 9%, just above the 10-year average, and 80% beating earnings estimates. Margins are expanding, and companies are managing tariff risk to date through supply chain adjustments, price increases and robust cost discipline,” according to Edmund Ng, Senior Equity Strategist, and Patrick Kellenberger, Emerging Market Equity Strategist, at Lombard Odier in a CIO Office Viewpoint dated Aug 12 . “While we expect a material slowing of the US economy in the second half, we see recession risks as contained, which should allow corporate earnings to keep growing. Indeed, since the start of the reporting season, full year 2025 and 2026 consensus earnings estimates for global equities have ticked up,” they add.
Beneath the index, the leadership profile is clear. “The performance of tech and communication services carried the index, and is driving earnings upgrades globally,” say Ng and Kellenberger. “There was some evidence in 2Q2025 that vast AI capital expenditure is starting to pay off, through rising cloud computing and digital advertising revenues. A weaker dollar helped tech giants with large international sales. The AI tailwind also lifted selected industrials and utilities, amid renewed growth in power demand from data centres and electrification, while solid capital market activity saw financials perform better than expected. Yet a number of more traditional cyclical and defensive sectors, including materials, industrials, healthcare, and consumer staples, did less well” .
Europe’s picture is more mixed. “In Europe, 2Q2025 earnings growth was better than anticipated, but against very low expectations. Financials made a big positive contribution, and the US-EU trade deal lifted some uncertainties. But the stronger euro saw revenues fall at the MSCI European Economic & Monetary Union (EMU) index level, and the autos sector in particular suffered. A spate of profit warnings highlighted the uncertain policy regime in which companies are operating. Earnings estimates for European firms in 2025 and 2026 have been drifting downwards, across all sectors except financials, in the past month” .
That combination of strong headline earnings, concentrated leadership and patchy regional momentum is shaping portfolio stance. Ng and Kellenberger note that “a period of slower earnings growth has already been priced into the third quarter estimates, as companies adjust to the impact of higher tariffs. Meanwhile, interest rate cuts from the Federal Reserve – we forecast three ahead this year – should help support elevated valuations” . They add that risk management has become more prominent after a brisk rebound from the April sell-off. “In early July we took some profits on developed market equities in the wake of an unusually swift rally since April’s sell-off and expectations of slower economic growth and higher market volatility ahead. Our preferred region remains emerging markets, and our preferred sector remains communication services – which benefits from many of the positive elements driving tech stocks, but trades at a more reasonable price” .
Investors are rightly asking whether the year’s gains can extend. Ng and Kellenberger acknowledge that “concerns about tariffs and a US labour market and services slowdown have not stopped many equity indices from reaching new highs in recent months. As a result, investors have grown nervous, in light of continued uncertainties. For example, the impact of tariffs will be felt more fully from 3Q2025 onwards. Investor positioning in equities has risen, especially among retail investors. Market gains this year have been far and fast, and led by a narrow group of stocks. US valuations in particular remain fairly full” . Yet they also point to offsets. “While overall investor positioning is a growing risk, we see few signs of speculative excesses to date. In the US, the equity market is no longer an effective proxy for the real economy, with AI beneficiaries somewhat disconnected from the short-term macro picture” .
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On balance, the house view remains constructive on equities over the coming quarters, anchored by earnings rather than multiple expansion. Ng and Kellenberger conclude: “In summary, earnings and technical market dynamics remain clear tailwinds for equities, while a deteriorating macro outlook and growing valuation headwind are not yet sufficient enough for us to turn cautious on the asset class, reinforcing the argument to stay invested”.
For stock selection and sector stance, the emphasis is on participation in durable revenue pools without paying peak multiples. Communication services ranks highest given its exposure to cloud and digital advertising trends that are benefiting from AI-related spend, while selected industrials and utilities tied to electrification and data centre load growth can complement core tech holdings at lower valuation risk . Financials remain tactically interesting where fee income and trading activity offset softer loan growth, but tariff-sensitive cyclicals with limited pricing power warrant caution as pass-through dynamics evolve in the second half.
In practical terms, that means staying engaged with equities but accepting that leadership may remain narrow while the tariff impulse works through demand and cost lines. Companies that have already demonstrated an ability to defend margins and re-route supply chains are better placed to navigate the next leg, particularly if the Federal Reserve begins to lower rates and helps ease the cost of capital. With consensus earnings for 2025 and 2026 now “ticked up” versus the start of the season, the profit cycle looks intact, even if growth rates moderate from here.
