
Exploring economic recovery trends: Insights from Denise Chisholm - October 7, 2025
Fidelity’s Director of Quantitative Market Strategy Denise Chisholm, shared her insights on the evolving earnings recovery in the U.S.
Here are some of the key points from her commentary.
The difference between median and cap-weighted earnings
Denise emphasised the significance of distinguishing between median and cap-weighted earnings to grasp the current market dynamics. Cap-weighted earnings reflect the performance of the largest companies, often skewing perceptions by overshadowing broader market trends. In contrast, median earnings offer a more balanced view, capturing average earnings growth across companies of all sizes.
Earnings recovery beyond mega-caps
For the first time in over three years, the U.S. has witnessed positive median earnings growth, marking a departure from a cycle dominated by cap-weighted earnings of large companies. The broader recovery has shown positive results for average-sized companies, indicating potential for a more stable economic environment and varied investment options.
Tax policy tailwinds fueling growth
Denise identified an effective tax cut of approximately 7% from changes in research and development expensing and bonus depreciation as a key driver of the earnings recovery. These tax advantages enhance profitability for both large corporations and small businesses, creating a favourable environment for sustained growth, hiring and capital expenditures. Lower interest rates and energy prices further bolster this positive outlook.
The complexity of data-driven monetary policy
Addressing the Federal Reserve's monetary policy, Denise highlighted the challenges posed by data variability and frequent revisions. She noted that while restrictive monetary policy is traditionally seen as a brake on economic activity, historical data often shows that higher real interest rates coincide with real GDP growth. This suggests that the Fed's approach is more about risk management and reacting to emerging risks, rather than dictating the economic cycle.
Earnings season as a market compass
Earnings continue to be the primary driver of market performance. Historically, even when earnings growth forecasts are optimistic, stocks have risen approximately 75% of the time during earnings seasons. In the current environment of positive median earnings growth and supportive policy tailwinds, there are potential opportunities for stock performance. Paying close attention to earnings reports offers insights into corporate resilience, sector momentum and potential market shifts.
Top sectors to watch according to Denise
- Technology: Driven by strong earnings growth, innovation, robust demand and favourable tax treatment.
- Financials: With the potential for deregulation and tax policies, there may be an increase in capital markets activity.
- Consumer discretionary: Including home builders, supported by a recovering housing market and lower mortgage rates that improve affordability and stimulate demand.
Conclusion: Positioning for a resilient market recovery
The transition to a more durable earnings recovery, supported by favourable tax policies, sector-specific growth opportunities and an adaptive monetary policy framework, offers a promising outlook according to Denise. Understanding these themes enables more informed portfolio construction, risk assessment and strategic positioning.