Global equities are starting the third-quarter earnings season with renewed optimism as Barclays reports stronger-than-expected results and upbeat guidance across key sectors. Despite ongoing geopolitical tensions and macroeconomic uncertainty, this positive earnings momentum has given investors confidence to look past external risks and focus on fundamentals.

Earnings Strength Fuels Market Momentum

According to Barclays strategist Emmanuel Cau, with roughly a quarter of companies having reported, U.S. earnings per share are tracking around 14% higher year-on-year, while Europe is showing 4% growth. On a blended basis, this equates to roughly 9% EPS growth for the U.S. and flat performance for Europe, both stronger than expected.

The most encouraging sign, Barclays noted, is the robust price reaction to earnings — the strongest since the fourth quarter of 2023. Banks, industrials, and cyclical sectors have been leading the charge, signaling that investors are once again rewarding earnings quality and growth potential rather than playing defense.

Cau highlighted that, “companies beating expectations are seeing meaningful stock outperformance,” a shift from the previous quarters where market sentiment was dominated by inflation and geopolitical risk factors.

European Challenges: Currency and Growth Divergence

While U.S. corporates have set a strong tone, Europe continues to face challenges, particularly from foreign exchange effects. The stronger euro has weighed on earnings translated from overseas markets, eroding some of the gains made by multinational firms.

However, there are signs of improvement. Domestic-oriented European companies, banks, and cyclical names have delivered better-than-expected results, helping to narrow the performance gap with the U.S. Barclays pointed out that the earnings revision momentum in Europe has turned positive for the first time in several quarters, signaling improving investor sentiment.

Geopolitical Noise Takes a Back Seat

Despite ongoing global risks — from Middle East tensions to uncertain monetary policy paths — investors are focusing more on corporate resilience. The solid earnings start has helped major indices stabilize, with the S&P 500 and STOXX 600 both showing signs of recovery after recent volatility.

Barclays believes that earnings visibility, rather than macro data, will drive short-term market direction. As companies continue to outperform expectations, the broader market is finding an anchor in profit growth rather than policy speculation.

Outlook: Earnings Over Uncertainty

Looking ahead, attention will turn to how companies guide for the final quarter of the year. The key factors to watch include EPS guidance adjustments, currency impacts, and consumer spending trends. Barclays remains cautiously optimistic, noting that strong early results “could help equity markets sustain their gains even amid lingering uncertainty.”

For now, the third-quarter earnings season has provided the markets with something they have been lacking — tangible proof that corporate performance remains strong despite global challenges. As more results roll in, the balance between earnings momentum and geopolitical risk will determine whether this optimism can hold through year-end.