Earnings growth and AI potential: Insights from Jurrien Timmer - November 10, 2025

Earnings momentum and market dynamics

The market is currently characterized by a dynamic balance between strong earnings momentum and recent market reversals. North American equity markets started the week positively, buoyed by progress toward ending the U.S. government shutdown and a robust earnings season. Non-U.S. markets also showed accelerating earnings estimates and solid performance. However, last week’s broad market decline, particularly in technology and AI stocks, highlights the need for vigilance. While some companies reported strong results, concerns about elevated valuations and potential corrections, especially in AI-related stocks with high price-to-earnings (P/E) ratios, temper investor enthusiasm.

AI growth: potential for opportunities and valuation risk

AI remains a central theme shaping markets. The promise of AI-driven productivity gains, supported by significant capital expenditures, has the potential to raise the economy’s growth speed limit without triggering excess inflation. This growth is crucial for managing rising global debt burdens by making debt more sustainable through higher growth rates. However, the market is at a critical inflection point, with enthusiasm reminiscent of the late 1990s internet boom, raising concerns about a possible bubble.

Valuations, earnings and market expectations

Earnings season has delivered encouraging results, with growth rate estimates revised upward to 11.5% for the year, recovering from earlier tariff-related downgrades. This momentum is supported by solid capital expenditure earnings and a benign interest rate environment, with bond yields remaining low. Despite this, the market’s current valuation implies an equity risk premium of 3.7%, below the historical average of 5%, suggesting vulnerability if earnings momentum falters. To justify current S&P 500 levels, earnings growth would need to reach approximately 18%, underscoring the importance of sustained earnings performance.

Mitigating concentration risk through diversification

Concentration risk is a significant concern, with the top 10 U.S. stocks comprising over 40% of market capitalization. While these stocks have driven recent gains, their performance could influence the broader market if valuations decline. Diversification across global markets and asset classes is essential to mitigate this risk. Non-U.S. markets have shown strong performance, with notable growth in valuation and dividend opportunities. A well-balanced portfolio including equities, bonds, gold, Bitcoin and alternative assets can provide resilience against market volatility. Strategic rebalancing is critical to avoid overexposure to any single asset class and maintain alignment with individual risk tolerance.

Economic signals amid uncertainty and the U.S. government shutdown

The ongoing U.S. government shutdown has limited access to key economic data, complicating the assessment of economic health. Available indicators reveal consumer confidence at multi-year lows and signs of stress in the labour market, including rising layoffs. Despite these challenges, the jobs market remains relatively stable, with hiring and firing roughly balanced. Proprietary data and alternative inflation measures suggest that inflation is moderating, supporting a constructive economic outlook once the shutdown resolves.

Conclusion: strategic vigilance in a complex market