Key facts
- Deutsche Bank's chief US equity strategist Binky Chadha advises investors to disregard geopolitical developments related to the Trump-Xi summit.
- Chadha expects stellar Q3 earnings to be the primary driver of the stock market.
- FactSet consensus estimates project 28.9% year-over-year earnings growth for the S&P 500 in Q3.
- This projected growth would mark the third consecutive quarter of annual earnings growth above 25%.
- Chadha estimates current equity prices are about 7% below where Q3 earnings would suggest they should be.
- Deutsche Bank has a 2026 year-end S&P 500 price target of 8,000.
Investors are closely watching the upcoming summit between President Trump and Chinese leader Xi Jinping, hoping for a de-escalation of trade tensions and a reduction in tariffs. However, Binky Chadha, chief US equity strategist at Deutsche Bank, suggests that geopolitical outcomes may be less impactful than strong corporate earnings. Chadha anticipates that third-quarter earnings season, set to begin in mid-October, will deliver stellar results, significantly boosting the stock market and fueling the ongoing bull market.
Chadha stated in a CNBC interview that while diplomatic progress is possible at the Trump-Xi meeting, the primary market driver remains Q3 earnings. He noted that earnings have been robust in 2026, with FactSet projecting 28.9% year-over-year earnings growth for the S&P 500 in the third quarter. This would represent the third consecutive quarter of earnings growth exceeding 25%. Deutsche Bank itself forecasts S&P 500 earnings to grow by 28% in 2026.
An indicator of this earnings strength, according to Chadha, is the sustained expansion in manufacturing activity since the winter. Despite a challenging period for stocks from early June to mid-September, where the S&P 500 declined by 75 basis points, recent market sentiment has improved. A Federal Reserve rate hike helped temper Treasury yields, and falling oil prices have eased inflation concerns. Furthermore, strong adoption of Meta's Muse AI assistant has revitalized interest in AI stocks, signaling optimism about hyperscalers monetizing AI investments and benefiting AI hardware firms.
Chadha believes current equity prices are undervalued relative to earnings, estimating a shortfall of about 7% for Q3 and 15% for Q4. On Tuesday, the Nasdaq 100 reached record highs, and the S&P 500 was trading near its all-time highs. Deutsche Bank has set a year-end 2026 price target of 8,000 for the S&P 500.