The 26% earnings quarter was a capex peak

Goldman Sachs strategists estimate S&P 500 earnings per share rose 26% over the past four quarters, the kind of trailing number that quietly becomes a planning assumption by the next rebalance meeting. The same strategists expect that pace to slow as AI capital spending moderates and depreciation on the infrastructure already built starts weighing on profits, because the capex that widened margins is the depreciation that will narrow them. That makes 26% a reading on a spending cycle, rather than a durable baseline for equity returns.

The strategists attribute the gain narrowly: AI investment and unusually strong semiconductor margins did significant work, leaving the index's earnings growth concentrated in one industry's margins and one category of spending. Most advisors already own that concentration inside a core equity sleeve; the open question is whether the return assumption in the plan admits to it.

Clients, for now, are not asking. Global equity funds drew $30.6 billion in the week through Sept. 25, their largest weekly inflow since early July, with U.S. equity funds taking about $19.6 billion to end four straight weeks of withdrawals and technology funds adding $4.8 billion. Bond funds recorded a 24th consecutive week of inflows, and that pairing is the tell: money is arriving in both sleeves at once, which points to new capital being put to work rather than a rotation between the two.

The economy has held up despite the Federal Reserve's return to rate hikes and a sharp increase in borrowing costs, and that resilience cuts the urgency for the Fed to reverse course, keeping bond yields near multiyear highs. Higher yields finally make the income sleeve carry its weight, which weakens the case for paying an elevated multiple for the equity beta that produced this earnings run.

The spending behind those margins is still being financed. A consortium backed by BlackRock and IFM Investors has entered exclusive talks to buy Stack Infrastructure's Asia-Pacific data-center portfolio from Blue Owl Capital, with the assets valued at roughly $20 billion to $25 billion and BlackRock's Artificial Intelligence Infrastructure Partnership included in the group. Data centers are the physical collateral for the earnings line item advisors are now extrapolating.

When earnings growth is capex-funded, the depreciation schedule becomes the forecast. Building an equity return assumption on the past four quarters capitalizes the top of that cycle, and the two lines that will say whether it was a top or a trend are semiconductor margins and AI capex guidance, both of which the Goldman strategists behind the 26% estimate expect to moderate.