- Profit warning from IG Group is a negative surprise but a relatively rare one from FTSE 100 members in 2026 to date
- Positive earnings surprises have outpaced negative ones by almost 2:1 in the UK’s elite stock market index so far this year
- Across the whole UK market, positive updates also hugely outweigh negative ones
- Such earnings momentum helps to explain the why the FTSE 100 and FTSE 250 both set all-time highs this year
- Rising gilt yields are now a challenge, though, and profit growth is likely the key to further gains in UK equities
“IG Group’s profit warning is taking a heavy toll on its shares and could yet have wider implications for UK equities, given how rare negative earnings surprises from FTSE 100 firms are in 2026 to date,” says AJ Bell investment director Russ Mould.
“Positive earnings updates that lead to profit forecast upgrades are, so far, outpacing profit warnings and downgrades by almost two to one among the FTSE 100 index’s members in 2026, a trend that can be seen across the UK stock market as a whole. However, the stakes are rising. The higher gilt yields go, the less cheap equities look by comparison, and the more headline indices and share prices will rely on earnings growth and forecast upgrades. A sudden, unexpected rash of warnings could therefore be bad news indeed.
“The FTSE 100 has surprised many onlookers by setting a new all-time high in each of 2023, 2024, 2025 and 2026 – and it has done so for two reasons.
“First, the FTSE 100 was cheap. The forward price/earnings (PE) multiple was lower than historical averages, the dividend yield was higher, and both the earnings yield and dividend yield were particularly attractive when seen in the context of what UK government bonds, or gilts, had to offer. This meant that a lot of the well-known bad news about the UK economy, tatty state of the nation’s finances and turbulent political scene were priced in, and therefore that it would not take a lot of good news to persuade sceptics to reassess and start buying.
“Second, the good news did indeed appear, in the form of a rapid recovery in profits and dividends from the Covid shock of 2020-21. Share buybacks and takeovers were also signs that management teams and trade or financial buyers saw the value on offer, and both topped up the total returns pot for investors for good measure.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts.
“However, the situation is more nuanced. The FTSE 100 trades on 13.6 times forward earnings for 2026, not too far from its historic average, and the forecast dividend yield is 3.3%, according to consensus analysts’ forecasts for both profits and dividend payments.
“Moreover, both no longer look clearly more attractive than gilts.
Source: LSEG Refinitiv data.
“That 3.3% forward dividend yield trails the benchmark 10-year gilt yield by two full percentage points. Those gilt coupons are pretty much guaranteed, too, since the UK’s last debt default came in 1672 under King Charles II. Dividend payments can be cut when times get tough and 63 of the current FTSE 100 crop have cut their shareholder distribution at some stage in the past decade. Some have done so more than once.
Source: Company accounts.
“Meanwhile, on an earnings basis, the PE ratio measure tells the investor how long it will take a company to earn its stock market capitalisation in after-tax income, assuming that profits do not change. Again, the FTSE 100 trades on 13.6 times forward earnings. A 10-year gilt with a running yield of 5.40% that is issued and redeemed at par of £100 therefore trades, in effect, at 18.5 times.
“Another way to look at the same comparison is the earnings yield figure. This is the inverse of the PE. That implies an earnings yield of 7.40%, compared to the gilt yield of 5.40%.
“The two-percentage-point premium from equities may support the case for exposure to the FTSE 100, but as an ‘equity risk premium’ that additional return looks skinny. Yes, share prices can go up, but they can go down as well, whereas plain, vanilla gilts are issued and redeemed at par.
“If UK equities are no longer especially cheap on the basis of the price, or multiple, that investors are paying for them (the ‘P’ in the PE), then the earnings (or the ‘E’) have to go up to provide a healthy upside for investors.
“The good news is that analysts believe the FTSE will generate record earnings in each of 2026, 2027 and 2028, with net income growth of 10%, 9% and 6%, respectively. Add in the forecast dividend yield and potential returns from buybacks and takeovers, and UK equities may still be capable of offering perfectly acceptable risk-adjusted returns.
“However, any stumble in earnings or dividend forecasts and there could be trouble ahead, especially if gilt yields stay high, or even go higher still.
“This is where earnings momentum becomes so important, and why IG Group’s stumble could be significant. One firm does not make a trend and IG’s alert looks to be down to very company-specific reasons, but a rash of alerts would be unwelcome.
“The good news so far is that in 2026 to date there have been 50 positive trading updates and upgrades to guidance from FTSE 100 members, compared to 27 profit warnings and downgrades to the outlook. This compares to 41 beats and 27 misses at the same stage in 2025.
Source: Company accounts. *To 2 October 2026.
“The picture across the whole of the UK market is similarly encouraging this year, with 315 positive surprises compared to 170 negative ones. The state of play a year ago was 260 versus 256 respectively.
Source: Company accounts. *To 2 October 2026.
“A less clear profit surprise picture did not hold back the FTSE 100 in 2025, but gilt yields were lower then and the market was pricing in interest rate cuts. Now, gilt yields are rising, and the market expects further interest rate increases.
“None of this suggests the FTSE 100 is about to hit a wall, especially as analysts still expect that healthy profit and dividend growth. But the benchmark index has gone nowhere fast since its February all-time high, to suggest that either profit and dividend momentum must stay positive, or gilt yields must start to slide, if the index is to repeat the healthy annual returns it has offered since the Covid lows of early 2020.”
