NEWS + VIEWS – 16/10/2026
MARKETS
Global share markets have been influenced by renewed inflation concerns and growing doubts about the sustainability of the AI investment boom. In the US, higher-than-expected September inflation figures raised concerns that the Federal Reserve may keep interest rates elevated or increase them further, putting pressure on technology and semiconductor stocks. Investors have also questioned whether the enormous spending on AI infrastructure will generate sufficient profits, prompting a shift towards more defensive sectors and companies reporting stronger earnings.
In Australia, the ASX 200 has been relatively resilient but volatile. Banks helped offset losses in mining and technology stocks, while BHP fell 4.7% and Rio Tinto (RIO) dropped 4.8% on Thursday as concerns about the AI investment outlook weighed on copper demand and resource shares. September unemployment rose to 4.7%, its highest level in five years, easing some expectations of another Reserve Bank of Australia rate rise, although inflation remains a concern.
US EARNINGS SEASON PREVIEW
The US is gearing up for another quarter of bumper corporate earnings spurred by lavish spending on the AI build-out. The robust growth should help Wall Street shrug off worries about the durability of the AI trade against the backdrop of rising borrowing costs but may do little to allay concerns about how reliant the record-high stock market has become on a small group of technology names.
Reporting season kicked off this week, with S&P 500 earnings forecast to have risen 27% in the September quarter from a year earlier, according to Goldman Sachs, propelled by companies at the centre of the AI infrastructure boom. That would mark the third consecutive quarter in which earnings growth has exceeded 25% - an unprecedented run outside of the recovery from financial crises.
US stocks reached a record high last week, having largely shrugged off a sell-off in the Treasury market that began in mid-August and accelerated after the Federal Reserve last month raised interest rates for the first time in three years. Longer-term borrowing costs have surged to their highest levels in more than two decades as a result. That has heaped pressure on the more interest rate-sensitive segments of the American economy such as financials, real estate and utilities, as well as smaller businesses and consumers.
However, all 11 sectors in the S&P 500 are expected to report earnings growth, according to FactSet. The data provider also notes that a record-high 72 companies have issued positive earnings guidance for the September quarter, while the number of groups issuing negative guidance is at its lowest in five years.
US energy companies are expected to post bumper profits thanks to the spiralling energy prices triggered by the closure of the Strait of Hormuz that have punished American consumers. A 30% jump in the price of West Texas Intermediate oil in the third quarter means US-listed energy majors are expected to report a 114% year-on-year jump in quarterly earnings growth, up from a forecast of 79% growth at the end of June (see chart below).
But the bulk of the market’s earnings growth is again set to come from Big Tech. Chip group Micron recently gave a preview of things to come when it reported net income of $US37.7 billion, up from $US3.2 billion a year before. A small group of large tech stocks, including Meta, Alphabet and Broadcom, is also carrying the broader equity market as rising government borrowing costs and resurgent energy prices weigh on other sectors.
Micron and Nvidia are expected to account for more than one-third of the market’s total quarterly earnings expansion, which is fuelling concerns about the narrowness of the earnings growth and the AI-related names underpinning the stock market’s highs, with several of the companies often customers of and investors in the others. Market breadth has plunged to its lowest since the dotcom bubble as investors continue to pump money into an increasingly narrow range of AI-linked stocks.
Analysts at Goldman expect capital expenditure by the so-called hyperscalers to have grown at an annual pace of 116% in the September quarter, marking an acceleration from the June quarter’s 87% expansion. Any signs of slowing investment growth would spell trouble for the US economy, according to Pimco economist Tiffany Wilding. Economic resilience would then become more dependent on AI-driven productivity gains arriving quickly enough to replace the fading spending.
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