This earnings season remains firmly focused on artificial intelligence. That intense spotlight, however, is unlikely to last much longer. A trader was seen working on the floor of the New York Stock Exchange recently, a scene reflecting the current market frenzy. The biggest technology stocks are poised to deliver most of the earnings growth once again during this reporting period. Analysts from Bank of America confirm this trend. Yet, a much broader array of companies should start contributing to market gains in 2026. This shift will happen as the economy stays steady and investors move away from riskier AI bets.
Earnings Outlook for the Current Quarter and Beyond
Bank of America projects collective S&P 500 profits for the December quarter will rise by about 7% compared to 2024 levels. This estimate is slightly below the 8.8% growth rate tracked by LSEG. However, the bank notes that upward revisions to fourth-quarter forecasts on Wall Street could lead companies to beat expectations. This scenario might deliver an overall growth rate closer to 11%. Corporate guidance is currently the most positive it has been since 2021, according to the bank's data.
JPMorgan Chase will officially kick off the earnings season on Tuesday. The six largest banks on Wall Street will issue their December quarter updates over the following three days. Technology is still expected to account for the vast majority of earnings growth. Profits for companies outside the so-called "Magnificent Seven" and the tech sector itself will likely increase by only around 1% from a year earlier. This analysis comes from BofA analysts Savita Subramanian and Victoria Roloff.
A Changing Picture for 2026
The landscape appears set to change looking ahead to 2026. "Analysts expect tech earnings to outperform, but optimism in cyclicals is picking up," said Subramanian and Roloff. They cited factors like tax refunds and stimulus talk ahead of mid-term elections. The bank predicts earnings growth for the Magnificent Seven will likely rise from 8% in 2025 to 9% this year. Growth outside the tech sector is expected to improve more significantly, jumping from 7% to around 11%.
LSEG forecasts point to collective S&P 500 earnings for all of 2026 rising 15.5% from 2025. This would reach approximately $313.81 per share. At that level, stocks would be trading at 22.1 times the earnings expected over the next twelve months.
Investor Sentiment and Market Separation
Mark Malek, chief investment officer at Siebert Financial, also anticipates a change in market performance this year. He still sees the influence of tech and the AI investment boom as paramount. "2026 will be the year when we start to see the first of the weak players drop off," he stated. "Additionally, many AI impostors will be revealed this year as well; the 2026 equivalents to Pets.com will not make it through to 2027."
Malek emphasized the big challenge for investors is to separate genuine opportunities from hype. "The big challenge for investors is to separate the wheat from the chaff and make sure that they don’t punish the true winners," he said. Markets are already beginning to process this separation. They are distinguishing between AI-related stocks with a clear path to profitability and those at greater risk of failure.
For example, Oracle has fallen more than 37% from its early September peak. This drop is partly due to concerns tied to OpenAI, one of its biggest customers. CoreWeave has fallen more than 40% from its recent all-time high. Super Micro Computer is down around 50%. Even shares of some highly profitable companies have declined. AI chip maker Nvidia, the world's biggest stock by market value, is down around 10% from its late October peak. Meta Platforms is down around 18%.
Tech Still in the Driver's Seat, But Not Alone
According to Wei Li, chief investment strategist at the BlackRock Investment Institute, technology will still lead in terms of earnings and performance. However, it simply means more earnings generation and stock performance will come from outside the sector. "Consensus expectations for the magnificent seven have been revised upward," she noted in a recent publication. They show 20% earnings growth in the fourth-quarter versus a year ago, holding at 19% in 2026. "That compares with 6% for the other S&P 493 in the fourth-quarter and 15% in 2026."
These figures might suggest a healthier market heading into the new year. The economic picture is improving. Growth is proving resilient. Inflation has yet to spike significantly due to recent tariff policies. The labor market, while softening, has not worsened dramatically.
Signs of a Broadening Rally
Adam Turnquist, chief technical strategist for LPL Financial, is already seeing evidence of the 2025 rally moving beyond tech in 2026. The Dow Jones Industrial Average and Dow Jones Transportation Average have both posted double-digit percentage gains over the past six months. Both indexes are cornerstones of "Dow Theory." This theory observes that stock markets move in predictable waves tied to economic growth.
"A key principle of 'Dow Theory' is confirmation, requiring the industrial and transportation averages to move in tandem," Turnquist explained. Their concurrent movement amounts to a "buy signal." Historically, this signal has led to S&P 500 gains of between 11% and 14% over the subsequent twelve months.
Eric Clark, portfolio manager at LOGO ETF, is also bullish, and not solely based on tech gains. "The market should be more broad-based this year," he said. "We’re already seeing that with small- and mid-cap stocks performing better than tech." Clark added, "In 2026, I think the average stock will outperform the market, and the real returns will come from outside the S&P 500. For now, the crowded trade in tech has already started to unwind."
