From Macro Back to Micro

Since earnings are evaluated both sequentially (performance relative to the prior quarter) and on a year-over-year basis, we will be looking at both dynamics in addition to trends assessed over longer time periods. If we reflect on this time last year, consumers and businesses began 2025’s second quarter uncertain about the early April 2025 Liberation Day tariff outcomes; however, after initial concerns were tempered following some proposed policy walk-backs, consumer and business activity surged, as did financial markets. This quarter, earnings growth relative to next year is expected to rise by a scant 0.71% based on Bloomberg consensus earnings.¹ Analysts peg sales growth at a more optimistic 5% for the year’s second quarter relative to last year.²

For the full year 2026 and 2027, sales and earnings growth relative to the prior year remain robust, with 8% sales growth expected for both years and 17% earnings growth expected this year and next.³ As we have shared in prior publications, Wall Street analysts can be an overly optimistic cohort, and expectations for this year and next year have steadily marched higher since the year began.

Earnings estimates remain highly geared toward the information technology and communications services sectors, which collectively represent roughly 40% of the S&P Index by member weight. Ironically, communications services earnings are expected to demonstrate lower growth than the broader S&P 500, while information technology sales and earnings growth expectations exceed 20% and 30%, respectively, for this year and next.⁴

Although estimates vary, expectations for large-company, or “hyperscaler,” capital expenditures tied to AI remain robust. At the start of the year, the five largest U.S. cloud and AI infrastructure providers — namely Microsoft, Alphabet, Amazon, Meta and Oracle — committed to between $660 and $690 billion in capital expenditures for the year.⁵ Following first-quarter earnings, Alphabet, Amazon, Microsoft and Meta alone committed to $725 billion, and factoring Oracle’s spend, that total approaches $800 billion.⁶ These growth rates represent a near doubling of last year’s expenditures.

As we have shared in recent issues, how companies and consumers interact with AI will likely evolve. Several companies have expressed concerns about costs associated with widespread corporate adoption of higher-priced AI models, with Uber’s infamous cost overrun widely cited as a cautionary tale for corporate CFOs and data managers.⁷ Further, the year began with a cautionary survey from Forbes, with its 2025 AI survey indicating that less than 1% of the 1,075 C-suite members polled had seen a significant return on investment (ROI), defined as a 20% or more increase in profitability or cost savings. Only 3% reported a substantial ROI of 10% to 20%, while the majority (53%) reported a limited ROI of 1% to 5%.⁸

The primary downside case for earnings growth would be an imbalance between supply and demand within the AI ecosystem, but the analysis is much more nuanced than just looking at current capital expenditures projections. As the adage goes, nothing cures high prices faster than high prices; as more companies adopt AI into their workstreams, their shareholders will continue to ask ROI-related questions.

Further, AI model providers are noticing the need to manage client costs. For example, “OpenAI CEO Sam Altman recently said its latest AI agentic coding model consumes 54 percent fewer tokens. Palo Alto Networks CEO Nikesh Arora told CNBC that he thinks ‘54 percent is a good start’ but added ‘we probably need another turn at’ making the tech more affordable for businesses.”⁹ Cost dynamics, along with assurances of proprietary data security, are essential for AI’s future adoption and contribution to corporate earnings.

The textbook relationships in which bonds zig while stocks zag has not been the case so far this year. The U.S. government bond market, which we view as the cornerstone of global finance, began the year with the 10-year note sporting a 4.17% yield. Although yields dipped during the initial Iranian conflict and fell below 4%, they peaked at nearly 4.7% in late May and currently sit at 4.55%. The inflationary concerns mentioned earlier have hurt the bond market, along with recent rate hikes by major central banks, particularly in Europe, and shifting investor expectations that the U.S. Federal Reserve could also raise interest rates.

In addition to the critical stock-bond relationship, other perceived diversifying assets have had more challenged reversals throughout the year’s first half. Precious metals, hydrocarbons, oil-service equities and inflation-protected assets have also been subject to sharp price divergences. Steadier performers have included real estate and infrastructure-related assets.

As we have shared, having deep diversification sources is always key in helping portfolios consistently compound. That said, the tools used may shift over time.

U.S. government indebtedness, inflation risks, AI ecosystem dynamics, midterm elections and changing Federal Reserve policies may alter how asset classes respond relative to textbook expectations. Broadening global reach, incorporating unique return streams via private market investing and resisting temptations that what has worked in the past will necessarily work in the future are all good habits.

Federal Reserve policy continues to drive capital markets, so alterations to existing policies or communication tools bear watching. For context, new Fed Chairman Kevin Warsh announced at his first Open Market Committee press conference that he was “appointing a task force in each of five areas that are central to the broad conduct of monetary policy: First, Fed communications; second, the Fed’s balance sheet; third, our use and reliance on existing data sources; fourth, productivity and jobs in an era of transformation; and last, the Fed’s inflation frameworks.”¹⁴

On Thursday, the Fed announced leaders within each of these areas, including university faculty members, current and former CEOs, former central bank leaders and venture capital executives. As Warsh noted in his announcement, “The U.S. economy has changed significantly over the last generation, and never more so than right now. Each task force will carefully consider whether policymakers' means and methods, analytical tools and policy approaches can be improved upon. I am honored that the best minds from a range of disciplines have agreed to work with us to sharpen our performance as an institution. The goal is straightforward: to ensure the Fed is best positioned to achieve our objectives in this consequential time.”¹⁵

We are particularly focused on how these changes impact the Fed’s balance sheet, usage, inflation measurement and communication policy. Warsh has been very clear that forward guidance, or signals to market participants regarding policy intentions, will be diminished if not non-existent, so markets are already geared for some level of opacity. Inflation measuring appears to strive to balance nearer-term inflationary issues like AI infrastructure buildout with the potential for productivity enhancements from that ecosystem’s development. The balance sheet transition may be a gradual one, but global central banks have responded in a near-uniform fashion to crises; buy assets with the intent to lower borrowing costs and stimulate activity. That may be the biggest change, and hopefully not one we will have to test in the near future.  

¹ Bloomberg Data, Northern Trust Wealth Management Research. Consensus earnings as of 7/10/2026, accessed on terminal 10 July 2026.

² Bloomberg Data, Northern Trust Wealth Management Research. Consensus sales as of 7/10/2026, accessed on terminal 10 July 2026.

³ Bloomberg Data, Northern Trust Wealth Management Research. Consensus 2026 and 2027 sales and earnings as of 7/10/2026, accessed on terminal 10 July 2026.

⁴ Bloomberg Data, Northern Trust Wealth Management Research. Consensus 2026 and 2027 sales and earnings as of 7/10/2026, accessed on terminal 10 July 2026.

⁵ Patience, Nick. “AI Capex 2026: The $690B Infrastructure Sprint.” Futurum. February 12, 2026. https://futurumgroup.com/insights/ai-capex-2026-the-690b-infrastructure-sprint/. Accessed 10 July 2026. 

⁶ James, Luke. “Google, Microsoft, Meta, and Amazon Capex Spending to Hit $725 billion in 2026.” Tom’s HARDWARE. April 30, 2026. https://www.tomshardware.com/tech-industry/big-tech/big-techs-ai-spending-plans-reach-725-billion.

⁷ Alexis, Alexei. “Uber’s Finance Team Overtaken by Engineering in AI Use.” CFO Dive. May 29, 2026. https://www.cfodive.com/news/ubers-finance-team-overtaken-engineering-ai-use/821513/. Accessed 10 July 2026.

⁸ Maclean, David. “AI’s ROI Reality Check: Are Companies Measuring What Matters?” Forbes Research. October 9, 2025. https://www.forbes.com/sites/forbes-research/2025/10/08/ai-roi-measurement-challenges-forbes-survey-2025/. Accessed 10 July 2026.

⁹ Crumley, Bruce. “AI Adoption Was the Easy Part. Now Comes the Dollar-Sign Shock.” Inc. July 10, 2026. https://www.inc.com/bruce-crumley/ai-adoption-was-the-easy-part-now-comes-the-dollar-sign-shock/91372404. Accessed 10 July 2026.

¹⁰ U.S. Bureau of Labor Statistics. “Real Earnings Summary.” Bureau of Labor Statistics Economic News Release. June 10, 2026. https://www.bls.gov/news.release/realer.nr0.htm. Accessed 10 July 2026.

¹¹ BIZ Weekly. “U.S. Retail Earnings Highlight Shifting Consumer Spending Trends in 2026.” BIZ Weekly Finance. May 14, 2026. https://bizweekly.com/u-s-retail-earnings-highlight-shifting-consumer-spending-trends-in-2026/. Accessed 10 July 2026.

¹² Institute of Grocery Distribution. “European Retail: Trends Driving Growth in 2026.” IGD Retail Analysis. December 12, 2025. https://www.igd.com/articles/european-retail-trends-driving-growth-in-2026/72167. Accessed 10 July 2026.

¹³ Reuters. “China Allocates Initial $8.9 Billion for Consumer Goods Trade-In Scheme in 2026.” Reuters News. December 30, 2025. https://www.reuters.com/world/asia-pacific/china-allocates-89-billion-fund-2026-consumer-goods-trade-in-scheme-2025-12-30/. Accessed 10 July 2026.

¹⁴ U.S. Federal Reserve. “Transcript of Chairman Warsh’s Press Conference.” Federal Reserve Media Center. June 17, 2026. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20260617.pdf#:~:text=I'm,third%2C%20our%20use%20and%20reliance. Accessed 10 July 2026.

¹⁵ U.S. Federal Reserve. “Federal Reserve Announces the Leadership and Objectives of Its Task Forces to Advance the Conduct of Monetary Policy.” Federal Reserve News and Events. July 9, 2026. https://www.federalreserve.gov/newsevents/pressreleases/monetary20260709a.htm. Accessed 10 July 2026.