Michael Wilson of Morgan Stanley notes that a steep drop in US stock valuations since early summer has created a "better setup" for economic cycle sectors. Capital-goods names stand out with the strongest earnings revision profiles. Carlisle Cos Inc., Caterpillar Inc., and General Dynamics Corp. were highlighted as top stocks based on quality and improving revisions, drawing down more than 10% from June 2026 peaks.
Broadening backlogs across machinery and fabricated metals are improving revenue visibility. Meanwhile, Goldman Sachs strategists, led by Ben Snider, anticipate third-quarter earnings growth driven by AI infrastructure spending beneficiaries. They emphasize AI monetization and productivity as key themes.
Recent economic growth data remains strong, with S&P 500 earnings revision breadth positive. However, analysts warn that earnings growth may have slowed from the second quarter due to cost pressures limiting margin expansion. The dollar's tailwind for revenue growth is also expected to be modestly smaller.
Wilson stresses that earnings quality, free cash flow, and revisions breadth will be key differentiators in the current environment.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing