U.S. earnings season starts strong

Key takeaways

• Most big U.S. banks beat earnings expectations 
• China’s growth remains subdued
• Japanese equities rally while yen weakens

U.S. fourth-quarter earnings season began with major banks reporting results that were generally stronger than expected. Most large banks beat earnings forecasts, with many also exceeding revenue expectations, reinforcing our view that the U.S. economy remains in a healthy state.

Results were not universally positive, however. Some companies flagged higher-than-expected capital expenditure plans, which led to a modest market reaction. However, management commentary suggested that overall business conditions remain supportive.

Outside the financial sector, Delta Air Lines reaffirmed the idea of a “K-shaped” economy. The company reported a strong start to 2026, driven primarily by demand for premium and business-class travel. In our view, this highlights how higher-income consumers continue to account for a disproportionate share of spending.

Economic data released during the week painted a similarly resilient picture. U.S. inflation surprised modestly to the downside, particularly for core measures, though we do not see this as a major shift for Federal Reserve (Fed) policy. We continue to expect the Fed will stay on hold for much of the year, with the possibility of one rate cut later in 2026.

U.S. labor-market data also remains encouraging. Weekly jobless claims continue to trend lower, extending the “low-hire, low-fire” dynamic seen through much of last year. If growth reaccelerates as we expect—supported by fiscal stimulus, consumer spending, and continued investment in artificial intelligence—we believe hiring could gradually pick up.

Recent numbers continue to point to a soft growth environment in China. Exports remain one of the economy’s main sources of support, with the latest batch of trade data coming in stronger than expected.

In contrast, credit data suggests Chinese households and businesses remain cautious, with consumer borrowing still weak amid a soft housing market and limited recovery in corporate credit demand. Local government bond issuance has also remained subdued, though we expect activity to pick up later in the year as issuance quotas are utilized.

Overall, exports are helping to stabilize activity, but domestic growth remains subdued.

In Japan, markets reacted sharply to political developments after Prime Minister Sanae Takaichi appeared likely to call a snap election, potentially as early as Feb. 8. Japanese equities responded positively, with the TOPIX up around 5% as of Thursday’s close.

The rally reflects expectations of increased fiscal stimulus. At the same time, the yen weakened, with the U.S. dollar rising to around 158.5 yen—approaching a level typically associated with government intervention.

One notable difference from previous episodes is positioning. Unlike past moves toward the 160 level, speculative positioning in the yen currently appears relatively neutral. While valuations remain attractive and the policy cycle could become more supportive if the Bank of Japan continues to raise rates gradually, sentiment has not reached extremes.

As a result, we do not view current yen levels as presenting a clear tactical opportunity, though we are watching positioning and political developments closely in the weeks ahead.