June Equity Review - Calibrating the rotation within

The guy just got $70bn of funny money to play with to get us to space. Of course, bond investors are not the same as equity investors. Equity investors, you can take them to Mars. Bond investors are, like, ‘where is my coupon?’

— Ludovic Subran, Allianz CIO, speaking at the FT Global Insurance Summit on 24 June.

June marked a turning point in the character of the AI trade rather than its direction. For most H1 2026, it advanced as a single instrument; in June, its internal hierarchy fractured. It was a momentum unwind, owing more to market structure than to any deterioration in fundamentals. The rotation was visible in market breadth: the equal-weighted S&P 500 outperformed the benchmark by 3.24 percentage points, even as the headline index slipped 1.06% and the Russell 2000 and the Dow led the major indices.

Beneath the price action, the earnings backdrop strengthened. Q2 is set to deliver the S&P 500's seventh consecutive quarter of double-digit growth, with the blended rate revised up to 23.1% from 18.8% at the quarter's start, led by Energy, Information Technology and Materials, and offset only by a contraction in Health Care. Sell-side conviction is commensurate: Buy ratings stand at their highest month-end share since at least 2010.

The through-line is that the buildout is real, but no longer moves as one. This edition of the Equity Monthly Review frames June's rotation through the seven-layer AI taxonomy and previews a Q2 season that will test which layers are earning their valuations.

This report will analyse:

▪ S&P 500 earnings growth and estimates for Q2

▪ Sectoral revisions for Q2 and net profit margins

▪ Sector-specific monthly performance for US and European equities

For investor’s consideration: One Trade, Seven Tempos

For most of the first half of the year, the AI complex behaved as a single instrument. In June, it began to trade as an orchestra, and the sections fell out of time. The month's defining feature was not a change in the thesis, but a change in its internal hierarchy. The layers of the buildout that had led the advance became the sharpest decliners into month-end, while the layers that had lagged began, quietly, to broaden the base. The trigger was not fundamental. It was a momentum unwind that owed more to market structure than to any deterioration in the earnings power that our latest Alpha Vibes, The Architecture of Disruption, set out to map.

The setup was extreme. Memory and semiconductors had carried the tape through a remarkable Q2, as the Philadelphia Semiconductor Index rallied 87.8%, with Micron and SanDisk each advancing more than 2.4x as the high-bandwidth memory cycle repriced entire product lines. By the time June arrived, positioning in the group had reached levels that Goldman Sachs flagged as near the top of its historical range. In the final week of the month, memory and semis led the market lower in a mechanical deleveraging rather than a reassessment of demand. The group came off a quarter too large to be defended by positioning alone. The same names that had driven the rally led the sell-off, turning spring’s rotation chatter into an actual rotation.

What followed was equally informative. The unwind fed a visible broadening: industrials, health care and materials, stood among the standouts, while machinery, the clearest expression of a broadening industrial trade, joined them. The laggards were telling in their own right: consumer staples, energy and utilities trailed the move. This was not risk-off. It was risk rotating out of the most concentrated expression of the AI trade and into the parts of the market that had been left behind by it.

Beneath the positioning story sat genuine questions, with the sell-off in AI-exposed technology giving them fresh urgency: are today's margins durable and can they justify the rising cost of the buildout? The tech ecosystem is generating profits well in excess of the wider market. These profits have done more than support valuations, they have reopened the primary market. SpaceX's June listing, the largest on record, signalled an appetite for ever optimistic ideas about the future and set expectations for further mega-cap and smaller issuance into the balance of 2026. Yet, the more telling signal was not the equity. Roughly two weeks after its debut, the group placed some $25 billion of debt that has since drifted toward levels associated with junk-rated borrowers, despite an investment-grade standing from the major agencies. This is a reminder that the market prices the funding of the buildout more soberly than it prices the story.

The durability question has history behind it. Margins sit near record highs, amplified by tax incentives (the one, big beautiful bill or OBBBA) and an arms race that has pulled CapEx forward, creating bottlenecks and sharp price increases, with a large share of that spending cycling back into the sector itself. That feedback loop makes profits more volatile than mainstream earnings. It also explains why 1999/2000 remains an uncomfortable comparison: tech profits surged relative to the market, then fell back once capacity exceeded end-demand. To sustain today’s margins, CapEx discipline and monetisation must keep pace.

The other side of June's rotation was the quiet strengthening of infrastructure and materials — the firms that build and operate physical assets, from power and grid networks to the AI buildout itself. After a strong first half of 2026, their appeal rests less on momentum than on cashflow quality. Revenues are often regulated, contracted or inflation-linked, and that can help stabilise portfolios when correlations rise. They remain underrepresented in the major indices. Their long-term tailwinds, digitalisation, electrification and deglobalisation, map directly onto the physical layers of the taxonomy. As the crowded silicon trade unwound, the market rediscovered an appetite for yield, inflation sensitivity and structural growth in the same breath.

This is the case for expressing the thesis through layers rather than as a monolith. June did not challenge the argument that the buildout is real; it demonstrated that the buildout does not move as one. Memory led the market and then led it lower, a layer whose spectacular re-rating carries a cyclical caveat that the month made clear. The power and site-readiness layers broadened as capital sought durable cashflows and multi-decade demand. The application layer, where monetisation is still being interrogated, remained the conspicuous laggard. Each layer carries its own revenue drivers, its own margin profile and its own sensitivity to the pace of the buildout. In a month defined by rotation, those differences were the entire story. The opportunity is real, but it is not priced evenly. The exhibit below traces each layer's price performance through June.

Preview of Q2 earnings

As the corporate earnings reporting season is set to begin, market expectations for the performance of S&P 500 companies have been revised up from initial projections at the start of the quarter. This outlook is accompanied by the forecast that the index will report its seventh consecutive quarter of double-digit y/o/y earnings growth rate.

For Q2, the proportion of S&P 500 companies issuing positive EPS guidance is higher than historical averages. Out of the 110 companies in the index that have provided guidance for Q2 2026 so far, 62 have issued positive EPS guidance, while 48 have issued negative guidance. The resulting 56.3% rate of positive guidance is above the 5- and 10-year averages of 41.0%.

The increase in the index's overall earnings growth rate expectations since 31 March can be primarily attributed to upward revisions and positive EPS surprises reported by companies in ten sectors, led by Energy, Information Technology and Materials, and partially offset by downward revisions to earnings estimates in Health Care, the only sector anticipated to report a y/o/y decline in earnings.

According to FactSet, as of 26 June, the blended earnings growth rate for Q2 is 23.1%, 4.3 percentage points higher than the 18.8% forecast on 31 March. Should this figure hold, it will mark the twelfth consecutive quarter of y/o/y earnings growth for the index and its seventh consecutive quarter of double-digit earnings growth.

Earnings revisions: increase in estimates since 31 March

The current estimated earnings growth rate for the S&P 500 for Q2 2026 reflects a 3.7% increase from the initial estimate of $698.4 billion at the beginning of the quarter, with the current estimate at $724.1 billion.

The estimated earnings for the Energy sector have increased by 50.6% since the start of Q2, from $34.7 billion to $52.3 billion, with 76.1% of the companies experiencing an increase in their mean EPS estimate. This has resulted in an anticipated y/o/y earnings increase of 123.2% today, compared to an expected y/o/y earnings increase of 48.3% on 31 March.

Since the beginning of the Q2, Information Technology has experienced the second-largest percentage increase in estimated dollar-level earnings among all eleven sectors. Estimates have been revised up 9.9% from $203.4 billion to $223.6 billion. As a result, the sector's estimated y/o/y earnings have shifted from a projected growth rate of 48.5% on 31 March to an anticipated 63.2% growth rate. Overall, 83.7% of companies in the sector — 62 out of 74 — have experienced an increase in their mean EPS estimate over this period.

In contrast, Health Care has recorded the largest percentage decrease in estimated dollar-level earnings among all eleven sectors since the start of Q2, with a 14.7% decline from $78.0 billion to $66.6 billion. The estimated y/o/y earnings for the sector have shifted from a projected 6.7% growth on 31 March to a forecast 9.0% decline. This trend is widespread, as 50.8% of companies in the sector have seen their mean EPS estimates decrease over this time.

Nevertheless, the bottom-up EPS estimate for Q2, which reflects the aggregated median earnings forecasts for each of the 503 companies in the S&P 500 and serves as a proxy for the index's overall earnings, has increased by 3.4% since 31 March. It is common practice for analysts to lower earnings estimates during a typical quarter. Over the past five years or 20 quarters, earnings expectations have on average decreased by 1.6% throughout each quarter.

With respect to revenue, the estimated y/o/y growth rate for Q1 2026 is 12.3%. This is above the 5- and 10-year averages of 8.7% and 6.3%, respectively. Should the actual revenue growth rate for the quarter reach 12.3%, it would represent the highest rate recorded by the index since Q2 2022, when growth stood at 13.9%. At the sector level, all eleven sectors are anticipated to achieve year-on-year revenue increases, with Information Technology, Energy and Communication Services expected to lead this expansion. 

S&P 500 Earnings Growth in Q2: 23.1%

The projected y/o/y earnings growth rate for Q2 2026 is 23.1%. This figure is above the 5-year average of 16.4% and the 10-year average of 10.3%. Sector-specific analysis reveals that ten of the eleven sectors within the S&P 500 are reporting y/o/y earnings growth, led by Energy, Information Technology and Materials. Four of these ten sectors are reporting double-digit growth. Conversely, Health Care is expected to report y/o/y declines in earnings.

Energy is expected to report the highest y/o/y earnings growth rate of all eleven sectors at 123.2%. At the sub-industry level, 4 of 5 sub-industries in the sector are projected to report y/o/y earnings growth. The Oil & Gas Refining & Marketing and Integrated Oil & Gas sub-industries are expected to be the largest contributors to earnings growth for the sector. Oil & Gas Equipment & Services is the only sub-industry expected to record a y/o/y earnings decline. At the company level, the most significant upward revisions to EPS estimates are for Chevron, whose estimate rose to $5.19 from $2.59, Occidental Petroleum, to $1.83 from $1.02, APA Corporation, to $2.15 from $1.24 and Diamondback Energy, to $6.20 from $3.71.

Information Technology is forecast to deliver the second-highest y/o/y earnings growth among the eleven sectors, rising by 63.2%. All six constituent industries are expected to record earnings growth, with Semiconductors & Semiconductor Equipment projected to provide the largest contribution to the sector’s performance. Excluding this industry, the sector’s estimated earnings growth rate would fall from 63.2% to 25.7%. At the company level, the most significant upward EPS estimate revisions are for Intel, to $0.21 from $0.08, SanDisk, to $33.64 from $18.57, Dell Technologies, to $4.88 from $2.92 and Hewlett Packard Enterprise, to $0.92 from $0.57.

Materials is expected to record the third-highest y/o/y earnings growth among the eleven sectors, at 35.3%. All four industries within the sector are projected to deliver earnings growth, led by Metals & Mining and Chemicals. At the company level, the largest upward EPS estimate revisions are for Dow, to $1.20 from $0.32, LyondellBasell Industries, to $3.21 from $1.63, Albemarle, to $3.09 from $1.91 and CF Industries, to $5.64 from $3.68.

In contrast, the Health Care sector is projected to experience a y/o/y decline in earnings, with a decrease of 9.0%. At the industry level, one out of six industries are forecast to deliver negative earnings growth; Biotechnology is anticipated to decline by 79%. Conversely, Health Care Technology, Pharmaceuticals, Health Care Providers & Services, Health Care 

Equipment & Supplies, and Life Sciences, Tools, & Services are poised to report positive y/o/y earnings growth. At the company level, Gilead Sciences is expected to be the largest detractor on the sector’s earnings, with a projected loss per share of $7.32 compared with EPS of $2.10 a year earlier. On 7 May, Gilead Sciences issued 2026 EPS guidance of -$1.05 to -$0.65, including $11.5 billion in IPR&D charges and financing costs. Excluding Gilead Sciences from the sector calculation, Health Care would be expected to report Q2 earnings growth of 7.1%, rather than a 9.0% decline.

S&P 500 Net Profit margin in Q2: 14.2%

The projected net profit margin for the S&P 500 in the second quarter of 2026 stands at 14.2%. This figure is below the net profit margin recorded in the previous quarter of 14.8% but surpasses both the margin from the same quarter last year, which was 12.9%, and the five-year average of 12.3%.

At the sector level, five sectors are forecast to achieve a y/o/y increase in net profit margins in Q2 2026 compared to the same period in 2025. Energy is expected to lead this growth, followed by Information Technology. Conversely, six sectors are anticipated to experience a y/o/y decline in net profit margins, with Real Estate showing the most pronounced decrease, followed by Health Care.

Eight sectors are forecast to report net profit margins in Q2 that exceed their respective five-year averages, with Information Technology demonstrating the most significant improvement, attaining 20.7% compared to a five-year average of 25.3%. In contrast, three sectors are predicted to report net profit margins below their five-year averages, led by Real Estate, which is expected to post a margin of 33.6%, lower than its five-year average of 35.7%.

Looking forward to the rest of 2026

Looking ahead, analysts forecast y/o/y earnings growth rates of 26.7% and 24.2% for Q3 and Q4, respectively. For the entirety of calendar year 2026, analysts are anticipating a y/o/y earnings growth of 11.2%.

As of 26 June, the bottom-up target price over the next 12 months for the S&P 500 is set at 8,918.27, representing a 21.3% increase over the closing price of 7,354.02 of the same date.

Based on the difference between bottom-up target prices and closing prices, the sectors with the most significant anticipated price appreciation are Communication Services, at 32.4%, Consumer Discretionary at 26.6% and Information Technology at 26.5%. In comparison, the smallest expected price increases are forecast for Industrials, expected to increase by 10.2%, Real Estate, with an anticipated rise of 10.5%, and Financials, expected to have a 11.7% rise.

Which sectors and companies are sell-side analysts most bullish and bearish about now?

According to FactSet, as of 26 June, there are currently 12,853 analyst ratings on S&P 500 constituents. Of these, 59.7% are designated as Buy ratings, 35.5% as Hold, and 4.9% as Sell. This represents the highest proportion of Buy ratings at month-end since at least 2010. Previously, the peak month-end percentage for Buy recommendations was 57.5% in February 2022. 

At the sector level, analyst sentiment is most favourable towards Information Technology, Communication Services and Materials, with Buy ratings comprising 69%, 66%, and 65% of total ratings, respectively.

Conversely, analysts are least optimistic regarding Consumer Staples, Utilities and Real Estate, assigning Buy ratings to just 43%, 50%, and 54% of these sectors, respectively. Consumer Staples carries the highest proportion of Hold ratings at 49%, as well as the largest share of Sell ratings at 8%. Financials and Industrials follow with both sectors assigning 6% of its ratings as Sell.

Regional breakdown

US Equities

Five of the eleven S&P 500 sectors were down in June. Industrials outperformed with a rise of 7.19%, followed by Health Care at 6.46% and Financials at 4.22%. By contrast, Communication Services was the weakest performing sector, declining 7.86%, followed by Energy at 5.14% and Consumer Discretionary at 4.78%.

The equal-weighted version of the S&P 500 outperformed the benchmark by 3.24 percentage points in June, rising 2.18% compared with the S&P 500’s 1.06% loss. However, the equal-weighted version underperformed the benchmark in Q2 by 3.97 percentage points, having outperformed the benchmark in Q1 by 4.82 percentage points.

A review of the past five years (60 months) reveals that the June performance across all four major US stock indices was mixed, with two of them falling beneath their respective bottom quartile of monthly returns. Two out of the four indices delivered results above the 60th percentile. The Russell 2000, with a performance of 3.60%, was the strongest showing among the major US equity benchmarks, positioning it at its 69.4th percentile of the past 60-month performance distribution.

The Dow Jones Industrial Average also ranked at the 69.4th percentile for June, although its 2.52% gain was weaker than the Russell 2000’s performance, with 18 of the previous 60 months delivering stronger results. The Nasdaq 100 declined 0.19%, placing it at the 37.2nd percentile. The S&P 500 was the weakest of the four major US indices, falling 1.06% and ranking at the 28.8th percentile, meaning forty-three of the past sixty months recorded a stronger performance.

European Equities

During the month of June, the Stoxx Europe 600 witnessed negative performance in thirteen out of its seventeen sectors. Travel & Leisure outperformed within the index, advancing 7.19%, followed by Insurance and Banks at 6.39% and 6.32%, respectively. In contrast, Telecom recorded a decline of 10.32%, followed by Basic Resources and Autos & Parts, down 9.73% and 9.30%, respectively.

The performance of the Stoxx Europe 600 Equal Weight (EW) index offers additional insight into the breadth of the market recovery. Unlike the standard index, which is weighted by market capitalisation, the EW index assigns equal weight to each constituent. In June, it declined 0.46%, underperforming the standard Stoxx Europe 600 by 2.97 percentage points, following a 0.15 percentage point outperformance in May. This relative weakness points to a concentrated continuation across European sectors of the pronounced recovery seen in May and April.

An examination of equity index performance over the past five years (60 months) indicates that the results for June rank among the most divergent monthly outcomes observed in this period for European markets. Performance across individual countries showed high divergence, with two of the six major indices recording monthly returns higher than the 75th percentile of their respective 60-month distributions.

Specifically, the IBEX 35 rose by 6.03%, placing it at the 88.1st percentile of its five-year performance distribution. France’s CAC 40 posted an increase of 2.69% in June that positioned it at the 74.5th percentile, indicating that fifteen months out of the past sixty produced stronger results. UK’s FTSE 100 recorded a gain of 0.84%, placing it at 49.1st percentile.

In June, the Stoxx Europe 600 and MSCI Europe also delivered positive performances, ranking at the 71.1st and 77.9th percentiles, respectively, within their individual 60-month performance distributions. Germany’s DAX decline of 0.43% ranked at its 33.8th percentile, underperforming its European peers.

As of 18 June, according to LSEG I/B/E/S data for the Stoxx 600, Q1 2026 earnings are expected to increase 11.8% from Q1 2025. Excluding the Energy sector, earnings are expected to increase 7.1%. Q1 2025 revenue is expected to decrease 0.9% from Q1 2024. Excluding the Energy sector, revenues are expected to decrease 1.3%. Of the 293 companies in the Stoxx 600 that reported earnings for Q1 2025 by 18 June, 58.4% reported results exceeding analyst estimates. In a typical quarter 54% beat analyst EPS estimates. Of the 356 companies in the Stoxx 600 that have reported revenue for Q4 2025, 52.8% reported revenue exceeding analyst estimates. In a typical quarter 58% beat analyst revenue estimates.

The Stoxx 600 expects to see share-weighted earnings of €138.6 billion in Q1 2026 compared to share-weighted earnings of €124.0 billion (based on the year-ago earnings of the current constituents) in Q1 2025. Companies are collectively reporting earnings that are 8.2% above estimates. This figure is higher than the long-term average surprise factor of 5.8% observed since 2012.

Five of the ten sectors in the index expect improved earnings compared to Q1 2025. At 52.2%, Energy has the highest earnings growth rate for the quarter, while Real Estate has the highest anticipated contraction of 24.0% compared to Q1 2025.

The forward four-quarter price-to-earnings ratio (P/E) for the Stoxx 600 sits at 14.8x. This is above the 10-year average of 14.2x.

The Stoxx 600 is up 8.25% since this earnings season began on 8 April.

Analysts anticipate positive Q1 earnings growth in fourteen of the sixteen countries comprising the Stoxx 600 index. Norway, with an estimated growth rate of 57.2%, and Poland, at 43.9%, are projected to have the highest earnings growth, whereas Portugal and Denmark expected to experience declines, estimated at 33.9% and 10.0%, respectively.

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