May 2026 Insights

Quality Compounds Through Uncertainty

At first glance, it feels counterintuitive. Geopolitical tension remains elevated, inflation is elevated, bond yields are still a source of pressure, and investors continue to question whether the huge sums being spent on artificial intelligence will deliver an attractive return. Yet, despite this uncertain backdrop, major equity indices have continued to climb, with both the S&P 500 and Nasdaq consistently breaching all-time highs.

A share is ultimately a claim on a company’s future earnings stream. When companies grow revenues, defend margins, generate cash and reinvest at attractive returns, they create real economic value for shareholders. Over time, that value tends to be reflected in the share price. The first quarter earnings season has been a powerful reminder that earnings still matter most. With 95% of S&P 500 companies having reported, year-on-year earnings growth for the index reached 27%. Excluding post-recession rebound periods, this is the strongest earnings growth since 2004 and significantly ahead of analysts’ expectations.

Although ten of the eleven S&P 500 sectors delivered positive earnings growth, pointing to some improvement in breadth, the overall earnings picture remained heavily influenced by a relatively small group of companies. The hyperscalers, providers of large computing infrastructure, continued to account for a disproportionate share of market earnings growth and remained a major engine of index-level strength. This was particularly evident in the Nasdaq-100, which delivered earnings growth of 46% year-on-year, with Amazon, Alphabet, Meta and Microsoft contributing more than half. For the S&P 500, the group accounted for over a third of the 28% earnings growth. This remains important given the ongoing scrutiny around whether significant AI-related capex can generate attractive returns. While the debate is not yet settled, the latest results provide early evidence that AI investment may be starting to translate into productivity gains, efficiency improvements and stronger profit growth.

While the market has rewarded positive earnings growth, it is showing little tolerance for disappointment. Companies missing earnings expectations subsequently saw an average share price decline of 4.6%, compared to a five-year average of 2.9%. In an environment still shaped by policy uncertainty, rate volatility and shifting growth expectations, fundamentals are being rewarded and mistakes punished.

For long-term investors, the message is consistent. Markets will always be noisy in the short term, but over time, it is earnings power, cash generation and business quality that matter most. At High Street, our focus remains on identifying companies with durable competitive advantages, resilient business models and the ability to compound free cash flow. These are the businesses best positioned to create lasting value, with share prices ultimately tracking underlying fundamentals rather than short-term sentiment.

Unless otherwise stated, all performance and statistical figures provided in this article have been pulled from Bloomberg by the High Street Asset Management Research Team on 28 May 2026 and all the images provided in this article have been sourced from FreePik and have been used in line with their Acceptable Use Policy. The contents of our newsletters are frequently sourced from or verified through our various product providers and other third parties. Although every effort is made to ensure the accuracy of the information contained in the newsletter, it should not be construed as financial advice as defined in the Financial Advisory and Intermediary Services Act. Links are provided to third-party websites for convenience only. High Street Asset Management (Pty) Ltd cannot accept responsibility and does not endorse any information contained on a third-party site. For our full disclaimer, please see: https://hsam.co.za/legal/.