Wall Street is in the late innings of third-quarter earnings season, and the results so far have been solid, with two stats in particular hinting that the bull rally will continue into next year.
Morgan Stanley’s chief stock strategist, Michael Wilson, recently wrote that his team has been impressed by the strong growth in both sales and earnings per share from a wide range of companies.
Wall Street has been focused on Big Tech earnings for clues about the AI boom, but Wilson noted that the broader stats coming out of this earnings season have implications for the strength of the broader market in 2026.
Wilson said he’s focused on two things in particular: positive revenue surprises and EPS growth.
“We’re encouraged by the sales beat rate in earnings season (>2x avg.) and the best EPS growth for the median stock (11%) in 4 years—supportive of our call that a new cycle and bull market began in April,” Wilson stated.
Morgan Stanley.
While 2.3% sales growth may not seem high, it is roughly twice the typical rate of 1.1%. It signals that businesses are not only generating more profit, but they are also successfully selling more goods and services than Wall Street anticipated.
Wilson said that the median companies in the Russell 3000 index reached 11% EPS growth, almost double their second-quarter rate of 6%. This shows that profits are expanding across many sectors beyond Big Tech, supporting Wilson’s thesis that the stock market is in a “rolling” earnings recovery.
“We think this is an underappreciated story and see this trend continuing into 2026, driving a broadening in earnings contribution across major and secondary indices. As usual, stocks have figured this out ahead of the consensus forecaster,” Wilson said.
On other fronts, Wilson said that the trade truce between the US and China last week has “largely diffused” trade tensions, which is positive for markets. However, he added that there are lingering uncertainties around interest rates given Jerome Powell’s comments at last week’s Fed meeting.
“Over the next 6-12 months, we think moderate weakness in lagging labor data and the administration’s desire to “run it hot” will lead to an accommodative monetary policy backdrop even as nominal growth improves, but there is uncertainty around the pace and magnitude of the Fed’s path in the near-term.”