Deutsche Bank’s top US equity strategist says investors should largely ignore the Trump-Xi summit this week and focus instead on what will really move markets: third-quarter earnings. Binky Chadha told CNBC that while diplomatic progress on trade tensions would be nice, earnings strength is the dominant force shaping stock performance right now.

The timing matters. Third-quarter earnings season begins in mid-October, and Chadha expects results to be stellar relative to current stock prices. That gap creates a setup for a market rally, he said. According to FactSet, consensus estimates project 28.9% earnings growth for the S&P 500 year-over-year in Q3, marking the third consecutive quarter of annual earnings growth above 25%.

Chadha’s confidence rests on observable economic momentum. Manufacturing activity has been expanding since the past winter, and that surge typically signals healthy corporate earnings ahead. Deutsche Bank itself expects S&P 500 earnings to grow by 28% across all of 2026. Those fundamentals matter more than trade diplomacy, he argued.

The Valuation Gap

Stock prices currently sit below where earnings would justify, creating room for upside. Chadha estimated that on Q3 earnings, equities are short by about 7%, and on Q4 earnings by about 15%. That mismatch suggests stocks have not yet priced in the earnings strength ahead.

The market has endured a rough stretch since early June. While strong Q2 earnings reports sent stocks soaring in late July and early August, the S&P 500 dropped 75 basis points from June 2 through mid-September. Rising oil prices and higher Treasury yields fueled investor concerns about inflation, weighing on valuations.

Recent developments have eased some pressure. The Federal Reserve raised rates last week, which tamed long-term Treasury yields. Oil prices have cooled. Meanwhile, strong usage of Meta’s Muse AI assistant reinvigorated the AI trade, as investors became optimistic that major tech companies are monetizing their AI investments.

Where Stocks Stand Now

On Tuesday, the Nasdaq 100 hit record highs. The S&P 500 sat around 7,775, within 1% of all-time highs. Deutsche Bank’s year-end 2026 price target for the S&P 500 is 8,000, suggesting the index could gain roughly 3% from current levels if the bank’s outlook holds.

Coins, banknotes, money, and currency
Coins, banknotes, money, and currency. Illustrative stock photo via Pixabay.

The poor market returns over the past few months actually set up a favorable backdrop for a post-earnings rally, Chadha said. When valuations compress and sentiment sours, good news tends to hit harder. With earnings season approaching and Q3 results expected to impress, the setup favors buyers willing to step in before the reports come out.

The core message is straightforward: watch earnings, not headlines. Chadha’s outlook prioritizes corporate results over geopolitical developments, arguing that when fundamentals are this strong, trade deal negotiations matter less than the bottom line. For equity investors, the next few weeks will test whether that thesis holds true.