Corporate "guidance upgrades" surge, Wall Street is immersed in a perfect recovery narrative
Morgan Stanley's report shows that corporate executives are highly optimistic, raising performance guidance and reducing the use of the term "cautious." Companies are responding to macro challenges through diversified procurement and cost pass-through, leading to an increase in free cash flow. It is expected that ordinary corporate earnings will significantly grow by 17% in EPS by 2026. The breadth of earnings revisions for the S&P 500 and Russell 3000 indices is increasing, and artificial intelligence is enhancing efficiency. The "Great Beautiful Act" lowers corporate cash tax rates, and the positive impact will continue until 2026
Corporate executives are releasing the strongest signals of optimism in recent years, as they are raising performance guidance and reducing the use of terms like "cautious."
According to news from the Chase Trading Desk, a recent report released by Morgan Stanley on December 1 indicates that in the analysis of corporate earnings conference calls for the third quarter of 2025, the frequency of mentioning "raise guidance" has surged, while the frequency of mentioning "cautious" has significantly decreased.
Companies are shifting from passive responses to actively managing macro challenges. The report notes that the impact of tariffs has been successfully mitigated by most companies through diversified sourcing and cost pass-through strategies. Meanwhile, corporate free cash flow has improved through provisions such as R&D expense capitalization and accelerated depreciation.
These positive factors collectively support Wall Street's optimistic expectations. Morgan Stanley predicts that ordinary companies' earnings will see significant growth for the first time in four years in 2026, with an expected annual earnings per share (EPS) increase of 17%. Strong revenue growth, broad positive earnings revisions, and efficiency gains from artificial intelligence are driving the market towards a broader recovery.
Corporate Confidence Reversal: From "Cautious" to "Raise Guidance"
The shift in corporate sentiment is supported by clear data. Morgan Stanley cites data analysis from AlphaSense, indicating that in the recent earnings season, the frequency of mentioning "raise guidance" in earnings conference calls of U.S. listed companies has sharply increased, while the mention of "cautious" has dropped to a low point. This stark contrast vividly outlines the return of confidence among corporate management.
This optimistic sentiment is also reflected in broader earnings expectations. The report shows that the earnings revision breadth of the S&P 500 index has shown positive upward movement, while the EPS growth rate of median companies in the Russell 3000 index has also demonstrated a strong recovery trend. Morgan Stanley strategists are "encouraged" by these signals.
In addition to improvements in corporate operations, the report emphasizes that the "Inflation Reduction Act" has reduced companies' current cash tax rates by allowing R&D expenses to be capitalized and accelerating depreciation. This positive impact began in the third quarter of 2025 and is expected to continue into 2026. Morgan Stanley believes that cash flow growth will "support market expansion in 2026." For example, AT&T mentioned in its earnings report that the savings from reduced cash tax payments have been used to fund its employee pension plan.
The report also states that U.S. companies have been "generally successful" in mitigating the impact of tariffs. These mitigation measures include leveraging pricing power, conducting foreign exchange hedging, shifting products to non-tariff markets, building inventory, and diversifying supply chains Data shows that the mention of the term "tariff" in corporate earnings calls has peaked and begun to decline. Some companies have not only completely mitigated the negative impact of tariffs but have even exceeded market expectations when tariff rates were lower than anticipated. For example, General Motors stated that it has fully offset the impact of tariffs through various measures. Morgan Stanley analysis indicates that successful tariff management has created a more favorable performance comparison base for companies in 2026.
AI: From Concept to Productivity
Artificial intelligence is transitioning from a hot concept to a tangible productivity tool. Reports show that the frequency of mentions of "AI," "efficiency," and "productivity" in corporate earnings calls has reached new highs. The application of AI is becoming an important force driving the expansion of corporate profit margins.
According to the report, some companies already have AI-centric businesses that drive sales growth. However, more common application scenarios still focus on automating repetitive tasks and deep data analysis. For example, Bank of America revealed that its 17,000 programmers are using AI coding techniques, saving 10% to 15% in costs. Morgan Stanley predicts that AI-driven efficiency improvements will contribute approximately 30 basis points to the net profit margin of the S&P 500 index in 2026 and 50 basis points in 2027. Many companies indicate that they are still in the "early stages" of leveraging AI to enhance productivity, suggesting that there is still significant potential for the future.
Overall, the macroeconomic environment faced by companies is stabilizing and is no longer a source of new shocks. The report analysis found that although mentions of "cost pressures" and "margin pressures" still exist, companies have been able to "successfully manage" these challenges. Meanwhile, discussions about "inflation" remain steady compared to the previous quarter, indicating that the Consumer Price Index (CPI) and Producer Price Index (PPI) are entering a stable period.
The labor market also shows a "net neutral" trend. Although mentions of "hiring" and "layoffs" have both risen moderately, there are no signs of a sharp imbalance, and concerns about rising labor costs have eased.
The above wonderful content comes from the Wind Trading Platform.
For more detailed interpretations, including real-time interpretations and frontline research, please join the【 **Wind Trading Platform ▪ Annual Membership**】
Risk Warning and Disclaimer
The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk