Today let’s go on a little journey to connect three key puzzle pieces of the current investing and economic landscape. I’ll show you how corporate earnings, AI productivity boosts, and 2026 gross domestic product expectations come together to form a big bull thesis.
Let’s start with earnings.
Just last week something remarkable happened. As of this writing, 51% of S&P 500* companies have reported earnings results, and of them, 79% are beating estimates:
But the truly eye-opening change in the last week is a 15.9% year-over-year earnings growth increase:
That's an increase from 8.2% less than two weeks ago. It was led by the technology and industrial sectors – the biggest beneficiaries of AI infrastructure buildouts.
Even more impressive is the current blended net profit margin for the S&P 500. For Q4 2025, it’s now 13.2%:
Should that hold, it would be the highest ever reported level since FactSet began tracking in 2009. This metric is also led by tech and industrials:
These numbers are extraordinary. But we must point out that analysts expect net profit margins to be even higher in 2026. Respectively for each quarter, they expect margins of 13.2%, 13.8%, 14.2%, and 14.2%.
On the surface, this is fantastic. But we at Cornerstone want to know why earnings and profits are accelerating, along with if the growth is sustainable.
AI’s Impact on Productivity
At a high level, we want to dissect AI’s impact on productivity. This matters because history shows how higher productivity is extraordinarily bullish for stocks. It makes companies more efficient as output rises without increasing labor costs. That effect then subsequently boosts corporate profit margins and earnings.
We’re still in the early stages of AI corporate adoption:
However, we’re already beginning to see transformative increases in productivity. Third-quarter 2025 productivity rose 4.9% from a year ago, which is more than double the 1.9% long-term average:
The spike in productivity taking place already is extraordinarily impressive considering productivity benefits of major new technology innovations historically don't peak until workforce penetration nears or exceeds 50%:
And again, workforce AI penetration is still in its infancy. Based on the above chart, AI innovation should begin to compound acceleration of productivity gains for years to come.
This emerging productivity windfall provides significant support for the continued expected earnings strength in terms of EPS growth net profit margins. Historically, productivity increases have been significant tailwinds for stocks.
Since 1950, the S&P 500 has averaged 12% gains in the 12 months after the largest prior year productivity accelerations:
This clearly paints a picture of supportive economic and market growth moving forward.
5% Or More GDP
Speaking of economics, it appears that we have already begun to see the positive tailwinds reflected in the GDP growth rate.
For example, just last week we saw the Commerce Department revise and finalize its third-quarter 2025 GDP estimate to a 4.4% annual pace:
This is substantially higher than economists’ blended expectations for 3% growth. And there's no indication of this GDP growth slowing down in the near future.
Currently, the Atlanta Fed estimates that Q4 2025 GDP growth will be 4.2% year-over-year:
Understanding that GDP estimates are historically conservative, we think there’s a high likelihood we see a 5% or more GDP print for Q4 2025.
We also believe the current economic environment and productivity increases will support 5% or more GDP growth for all of 2026 for five key reasons.
- Increasingly Favorable Trade Data
One of the biggest boosts already underway in U.S. GDP growth has been the shrinking trade deficit. For example, recently the Commerce Department revealed the U.S. trade deficit plunged 11% in September to $52.8 billion, which was well below estimates of $63.1 billion.
That was the lowest U.S. trade deficit in five years. Then October data was even better. The deficit was just $29.4 billion, the lowest in 16 years:
This is extraordinarily positive or is an extraordinary contributor to overall GDP growth.
- Continually Lower Interest Rates
The Federal Reserve's latest dot plot shows a wide variety of opinions on rate cuts:
Recently, this is nothing new. Instead, a clearer picture of what to expect moving forward can be gleaned from the federal funds rate futures market, which now expects two or three interest rate cuts in 2026.
The latest inflation data supports more cuts as it continues a moderating trend. When combined with the job market struggles, it’s the exact recipe that leads to additional rate cuts.
- Corporate Reshoring
We all know numerous companies have been forced and/or incentivized to reshore their operations to the U.S. to avoid Trump 2.0 tariffs. This effect is being realized via a significant increase in manufacturing production value in the second half of 2025:
This will only further increase throughout 2026. How do we know? As of today, 101 private sector companies have announced industrial-based reshoring plans totaling manufacturing investments of over $1.5 trillion.
- The Data Center Investment Boom
There’s a somewhat popular narrative that the data center investment boom is near its end. The reality is that this data center boom is nowhere near finished. North America alone has spent over $60 billion in the data center market each of the last two years:
We can be confident this level of capital spending will not end in 2026, at least. There’s a substantial backlog in data center construction projects:
Until that backlog subsides, data center buildout contributions to GDP will continue.
- Liquid Natural Gas (LNG)
As of the end of 2025, the U.S. is the world's biggest LNG exporter and the first to exceed 100 million tons in a single year.
Furthermore, there is no end in sight as LNG exporters plan to boost capacity in the U.S. by adding about 13.9 billion cubic feet per day from 2026 to 2029. For perspective, the U.S. current capacity is 15.4 billion cubic feet per day. Thus, the expectation is to almost double capacity over the next few years.
Therefore, the spiking LNG export growth underway can reasonably be expected to continue straight up:
In October 2025, U.S. LNG gas export level was over 503 billion cubic feet. That was a 33.75% increase from a year ago.
What’s more, we’ll likely double that average monthly output over the next couple of years. And these increased LNG exports alone will continue to add billions of dollars to U.S. GDP growth moving forward.
Tying this all together, the combination of productivity boosts and economic growth are beginning to form the mathematical foundation needed in support of increasing earnings growth expectations throughout 2026:
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