News & Insights

Earnings remain strong but are primarily driven by tech. Manufacturing is showing signs of life and silver's dramatic volatility is a story of global industrial demand.

Earnings Reports Deliver, with Big Tech in the Lead 

Corporate earnings reports for the fourth quarter of 2025 are in, and while most are quite good, they didn’t have the breadth of the previous two quarters. With almost all companies now reported, S&P 500 earnings per share grew 14% year over year, marking the fifth consecutive quarter of double-digit growth. Seventy-three percent of reporting companies have beaten expectations on earnings, which is still respectable but below the exceptionally high rates of the second and third quarters. 

Profit margins reached a new high of 13.3%, indicating strong pricing power and cost discipline among America’s biggest companies. Furthermore, EPS guidance was much stronger than is typical for the season, signaling management’s continued confidence. Analysts are similarly confident, forecasting 15% earnings growth for 2026.

When it comes to capital expenditures, big tech companies — the Magnificent Seven, in particular — continued to be overwhelmingly responsible for the strong growth in 2025. However, forward-looking guidance suggests that a wider range of companies are expecting to boost spending in 2026, as improving revenues and tax incentives under new legislation encourage more companies to ramp up investment. 

The big question is whether earnings success will finally broaden after several years of Mag 7 dominance. There are good signs, such as forward EPS estimates for S&P 400 (mid-cap) and S&P 600 (small-cap) indexes showing an uptick for early 2026. While small caps are not seeing above-average improvement in guidance, mid caps have seen some of the best pickup outside of the pandemic era. Within the S&P 500, this broadening is not forecast for first-quarter earnings, however. Analysts expect a pickup in non-Mag 7 contribution to the index starting in the second quarter and continuing through the year.  Meanwhile, indexes like the Russell 1000 Value Index have outperformed growth indexes like the Russell 1000 Growth Index considerably.
 

S&P 500 Quarterly EPS Growth (Actual and Estimates)

Source: FactSet

S&P 400 Management Guidance Ratio (Number Above VS. Below Consensus ) 

Source: Bloomberg, BofA US Equity & Quant Strategy

Demand and Growth Surging for U.S. Manufacturing

For the second month in a row, and for the first time in years, manufacturing activity is seeing signs of life. The ISM Manufacturing PMI rose to expansion territory, from 47.5 to 52.4 in December. The optimistic results are largely attributable to new orders and production increases. New orders minus inventories, a short-term leading indicator that gauges whether demand is outpacing supply, is the highest in nearly five years.

While ISM isn’t the reliable bellwether it used to be, this month’s report is corroborated by other data points. The S&P Global U.S. Manufacturing PMI also moved upward, and expanding capacity suggests that manufacturers are preparing to ramp up production. Meanwhile, new orders of durable goods (excluding transportation) show the strongest growth rate in roughly three years. More importantly, growth in capital goods orders, which denotes business investment, also remains at multiyear highs.

Still of concern are relatively weak manufacturing employment numbers; the ISM Employment Index saw another small improvement but remains in contraction territory, suggesting firms are still skeptical about their growth prospects. Pricing pressures also persist. They have moderated from the spike around tariff “Liberation Day,” but remain historically elevated, pointing to some continued upward pricing pressures. However, the bulk of last year’s tariff-driven price increases should begin rolling off from the year-over-year numbers soon, providing some inflation relief. It appears that demand is strengthening in manufacturing and conditions are good for sustainable improvement in the sector.

ISM Manufacturing PMI Solidly in Expansion Territory

Source: Bloomberg

Capital Goods Orders Improving

Source: Bloomberg

Governments are Resetting the Supply/Demand Equilibrium for Silver

Despite severe volatility, including a near 40% crash in late January, silver is still up more than 100% over the last six months.

Compared to gold, which is largely driven by monetary and central bank demand, physical silver is strongly tied to the industrial cycle. Silver is an essential input into solar panels, electric vehicles, semiconductors, data centers and advanced electronics. As global investments in these sectors surge, demand for silver has risen dramatically. It has also become price-inelastic as consumption grows with little regard for price.

This dynamic is especially evident in emerging markets. Indian government mandates for expanding renewable energy have locked in high sovereign silver demand, weakening the rupee and thus encouraging retail buyers to purchase additional silver. Chinese government directives have similarly increased demand for silver in manufacturing and energy initiatives. This has disrupted traditional market dynamics where higher prices curb consumption. Meanwhile, China’s citizens are also buying silver due to a lack of confidence in the yuan.

In early 2026, China enacted a soft export ban on physical silver, particularly impacting India, sending premiums higher. Investors globally favor physical silver over paper claims, evidenced by skyrocketing lease rates at metals vaults like LBMA in London.

Europe and the U.S. are also contributing to the silver frenzy. Europe’s mandates for renewable energy and increased defense spending are putting even more demand on the metal. The U.S. is also rapidly building out energy infrastructure and aggressively investing in AI technologies, which also require massive amounts of silver.

Increases in the Price of Silver and Gold Year-Over-Year

Source: Bloomberg

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