Beyond AI: Earnings, Bonds, and Portfolio Hedges to Watch

Third quarter earnings are expected to broaden beyond AI, Treasury yields may be signaling a shift, and different types of portfolio hedges help protect against different types of declines. Read more for what to watch.

Last Edited by: LPL Research

Last Updated: October 29, 2026

illustration, vertical candlesticks chart viewed through a magnifying glass

IN THIS ARTICLE

Third quarter earnings season is underway, and the results are against a high bar. About one quarter of S&P 500 companies have reported, and 83% have beaten their profit targets. The average beat was modest at 2.5%, reflecting how high expectations were. Growth is tracking 38% thus far, and LPL Research expects third quarter earnings per share growth to land around 29%.

Three Things Investors Should Watch

The Market Signals Podcast from LPL Research highlights what investors should look for from AI-focused companies. Beating estimates is now the baseline. Three criteria matter this season:

  • Visible demand: Companies need to show how much committed capital backs their AI spending.
  • Monetization: LPL Research points to AI subscriptions, margin expansion, and cloud growth as signs companies are turning demand into revenue.
  • Return on investment: Investors want better free cash flow or a path toward it. Negative free cash flow contributed to prior sell-offs.

The Bond Market May Be Sending a Signal

The 10-year Treasury yield jumped after a hotter-than-expected September inflation report, then reversed lower. Bonds had become deeply oversold following a rise in yields since midsummer, elevated bearish sentiment, and heavy short positioning. But when a market stops responding to information the way it normally does, that can signal a shift beneath the surface. LPL Research highlights the dollar, 10-year Treasury yields, and gold as indicators to watch.

Risk Mitigation That Matches the Moment

Earnings seasons bring volatility, and LPL Research recommends thinking about portfolio risk mitigation in terms of time horizons rather than asset classes. No single hedge protects against every decline.

  • Week-1 Risk Mitigation covers fast sell-offs. Convex hedges such as put options pay a premium during calm markets and gain sharply when volatility spikes, often within days. Cash helps mitigate against forced selling. These hedges need a sudden shock, not a slow decline.
  • Month-1 Risk Mitigation typically uses managed futures that invest long and short across equity, bond, commodity, and currency markets. These strategies need weeks for a trend to form, so they may lean the wrong way at first. Once a drawdown persists, they can gain in several markets at once and are one of the few hedges that work when stocks and bonds fall together.
  • Full Cycle Risk Mitigation includes diversifying strategies such as global macro and equity market neutral that perform across cycles and reduce reliance on the stock-bond relationship.

In the 2020 fast crash scenario, long volatility strategies led hedge fund performance during a rapid crash. In 2022’s bear market, managed futures thrived with the SG Trend Index gaining 27.3%. The most durable approach combines all three time frames.

You may also be interested in:

Take a Deeper Dive

Continue exploring actionable insights to fuel your financial future.

Explore More

 

BEYOND AI EARNINGS FAQs

Will AI keep driving most of the earnings growth in the stock market?

AI remains the biggest earnings accelerator, but the growth story is broadening. Companies outside of AI and technology are expected to grow earnings at double-digit rates this quarter, supported by a healthy economy that may grow at more than 3% in real terms. LPL Research sees AI as a powerful driver rather than the only one, and a wider earnings base makes the market more resilient if any single sector stumbles.

Not necessarily. LPL Research cautions that the reversal does not confirm a peak in yields. Bonds had become stretched, with heavy bearish positioning that makes a pullback more likely. The longer-term trend may not have changed.

 

Watch whether yields stop reacting to bad economic data results, since that would reinforce the case for a shift. If you hold bonds or are considering fixed income, this could be a window to review potential opportunities in your strategy.

No single hedge works in every scenario. Convex hedges like put options respond fast during a sudden crash but cost money while you wait. Treasuries help mitigate growth scares but can fall when rising rates cause the sell-off. Managed futures need weeks for trends to form but can gain when stocks and bonds fall together. Diversifying strategies add a different return profile across full market cycles. Match each hedge to the type of decline you want risk mitigation.

Managed futures are speculative, use significant leverage, may carry substantial charges, and should only be considered suitable for the risk capital portion of an investor's portfolio.

Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. ​

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. ​

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. ​

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. ​

All investing involves risk, including possible loss of principal. ​

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. ​

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio. ​

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio. ​

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.​

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Indexes are unmanaged and cannot be invested in directly.

The MSCI US Broad Market Index captures broad U.S. equity coverage. The index includes 3,204 constituents across large, mid, small and micro capitalizations, about 99% of the U.S. equity universe. Indexes are unmanaged and cannot be invested in directly.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Private credit carries certain risks — illiquidity, opacity, borrower concentration, and bespoke structures — that distinguish it from corporate bonds and bank loans and complicate its evaluation and oversight.

All index data from FactSet or Bloomberg.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Guaranteed | Not Bank/Credit Union Deposits or Obligations | May Lose Value

For Public Use

Tracking #1201217