Hi, everyone. I'm Liz Ann Sonders, and this is the November Market Snapshot. Thanks, as always, for tuning in. Given that third quarter earnings season is coming to a close, I thought it would be a good time to share my thoughts on how S&P 500 companies have fared, especially since the ongoing shutdown, which we hope is ending soon, means investors need to rely a little more on company reports to get a sense of the macroeconomic landscape.
[Table for "Blowout quarter for earnings" for S&P 500 y/y earnings by sector is displayed]
So we have more than 90% of the S&P 500 Index has reported earnings, and what we can say is corporate America has, again, cleared a high bar. As shown here at the bottom of the table, the so-called blended growth rate, which combines actual reports already released with consensus estimates for reports yet to come, is nearly 17% year-over-year. That is not only more than double what expectations were at the start of third quarter reporting season, it is well above where earnings growth was in the first two quarters of this year. As you can also see, strong earnings are expected to persist into next year, albeit at a reduced pace per current consensus estimates.
[Green highlighted boxes for best sector in each quarter is displayed]
Now, the green boxes here show which sectors are leading the earnings growth horse race over each distinct period, including next year versus this year over on the right side. From a leadership perspective, and in large part due to the ongoing artificial intelligence boom, technology is in the hot seat, with financials and industrials not far behind. Now, the tech sector is expected to maintain its lead over the other 10 S&P 500 sectors into next year.
[Red highlighted boxes for worst sector in each quarter is displayed]
Now, the red boxes here show which sectors are lagging the earnings growth horse race over each distinct period, including next year versus this year. Now, at the other end of the spectrum from tech and bringing up the rear is the energy sector, with the classically defensive consumer staples sector not far behind. And those relative weak spots are also expected to persist into 2026.
[High/low chart for "Historically high beat rates" for S&P 500 earnings and revenue beat rates is displayed]
Now, one of the most widely watched metrics throughout each earning season is the so-called beat rate, which tracks the percentage of companies beating consensus estimates for both top line revenue and bottom line earnings growth. Not only is it high for both, the revenues beat rate has recently soared, as you can see. The earnings beat rate is running at nearly 83%, which compares to a long-term average of 67%, and the prior four quarter average of 77%. The revenues beat rate is running at more than 78%. That compares to a long-term average of 62%, and the prior four quarter average of 67%.
[High/low chart for "Don't miss it!"for Average S&P 500 member return in excess of S&P 500 return when EPS beat is displayed]
Next, we can look at how stocks of companies that have reported are performing relative to the S&P, and this covers the first full trading day after earnings announcements. Now, although not a historically high relative performance spread for beats, it is certainly better than the near nil spread in last year's fourth quarter, and this year's first quarter.
[Average S&P 500 member return in excess of S&P 500 return when EPS miss is displayed]
On the other hand, misses continue to get punished disproportionately to the rewards accruing to the companies that are beating, albeit at an improvement from the brutal spread from this year's second quarter.
[High/low chart for "Earnings' hookups" for 1Q25 S&P 500 y/y earnings growth is displayed]
Let's now take a look at something we often refer to as the earnings hook. Starting with this year's first quarter, you can see that consensus estimates were trending down, meaning the bar was getting set lower. It was only once companies began reporting in mid-April for the first quarter did the growth rate start to hook up.
[2Q25 S&P 500 y/y earnings growth is displayed]
The same thing happened around the second quarter reporting season, with estimates not hooking up until reporting season had actually begun.
[3Q25E S&P 500 y/y earnings growth is displayed]
The third quarter, the season we're reporting now, has been a different story, with estimates flat to actually slightly rising since this past June, meaning the bar was not getting set lower like in the first two quarters. As a result, the strong beat rate is not just due to the math of a lowered bar
[4Q25E S&P 500 y/y earnings growth is displayed]
Now, the third quarter's trend is also the case for fourth quarter estimates, which have also been generally trending modestly higher since this past summer, and frankly, will also likely hook higher once earning season begins, and that for the fourth quarter starts at the beginning of next year.
[1Q26E S&P 500 y/y earnings growth is displayed]
Now, looking into the first half of next year, you see a similar pattern, in that the bar has been gently rising since last summer. Now, I want to point out that big hook down you see prior to the stabilization is actually for a "good" reason. So as we were getting first quarter 2025 earnings, as they were being reported, and they were stronger than expected, analysts quite simply had to adjust their year-over-year growth rate assumptions simply because of the so-called "base effects." Your starting point is higher, so the growth rate a year from then goes a little bit lower.
[2Q26E S&P 500 y/y earnings growth is displayed]
And we see a repeat of this phenomenon for estimates for the second quarter of next year as well.
[List of "Takeaways" is displayed]
Now, key takeaways are shown here tied into some of the visuals that I show, but let me sum things up a little more broadly. Corporate fundamentals remain firm. Revenue surprises are broad, profit margins remain resilient, and forward earnings estimates are still rising. That said, in part due to valid concerns about stretched valuations and very weak market breadth, investors have been a bit more stingy when it comes to rewarding beats relative to punishing misses. We're going to address this in much more detail in our upcoming 2026 outlook report. But if 2026 delivers even a portion of the current near 14% growth expectation, the bull case for the stock market will hinge less on another wave of AI-related euphoria, and hopefully more on a broadening of profit growth across the S&P 500's rank and file.
More to come in our outlook, but thanks, as always, for tuning in.
[Disclosures and Definitions are displayed]