AI fueled the stock market rally. Earnings are now giving it staying power.

Core Viewpoint - Wall Street's focus is shifting from AI headlines to fundamental earnings power, which is beginning to broaden beyond Big Tech [1] Group 1: Earnings Performance - Morgan Stanley's data indicates that the "Magnificent Seven" are expected to achieve 23% net income growth for Q3, compared to 12% for the rest of the index, suggesting positive developments for earnings breadth [2] - FactSet reports that 82% of S&P 500 companies have beaten earnings estimates, with overall profits rising 13.1% year over year, marking the fourth consecutive quarter of double-digit growth [3] Group 2: Sector Performance - Six of the 11 sectors in the S&P 500 are showing year-over-year earnings gains, with Technology, Financials, and Consumer Discretionary leading the way, indicating a modest broadening of strength [3] Group 3: Market Sentiment - Some strategists caution that the earnings recovery needs to continue, as revisions remain below summer highs, indicating potential concerns about sustainability [4] - Despite a solid foundation provided by earnings, there are signs of unease among investors, as indicated by recent stock pullbacks [5] Group 4: Market Dynamics - The current market is described as a "K-shaped stock market," where AI-linked and high-quality growth stocks outperform the broader S&P 500 index [6] - Participation in the bull market is solid, which differentiates the current situation from the dot-com bubble, supporting a price target of 7,750 for the S&P 500 by year-end 2026 [7]