Earnings take centre stage

US equities can continue to outperform if companies deliver the earnings growth needed to offset tighter monetary conditions, but the portfolio should be diversified across regions and asset classes.

• The Fed has shifted from expected easing of roughly 60 basis points by December 2026 to an outlook for hikes through 2027, while a September 25-basis-point increase contributed to a sharp rise in the cost of capital.
• Through September, the S&P 500 gained around 12% while US Treasuries lost roughly 3%, a combination with only seven precedents since 1973; the impact of higher yields depends chiefly on whether corporate profits continue to grow.
• Consensus expects 2027 earnings growth of roughly 17% for the S&P 500, 24% for emerging markets, 20% for Japan and 12% for Europe, creating a demanding test for the forthcoming third-quarter reporting season.
• AI-related investment and broader corporate capital spending support revenues, but Technology earnings, cash generation and guidance must demonstrate that investment budgets are producing returns; concentrated earnings leadership leaves less room for disappointment.
• Candriam favours a Technology-healthcare barbell, remains neutral on Europe, prefers Japan and emerging markets, and combines higher US equity exposure with core European duration, selective US high yield, emerging-market local-currency debt and gold.

Takeaway: The overweight in US equities is justified only while earnings guidance remains resilient; renewed inflation, another sharp rise in yields or weaker profits would warrant reducing risk, while core European duration provides protection against disappointing regional growth.