Third-Quarter Earnings: Lofty Expectations, an Uneven Picture

Summary

• S&P 500 third-quarter year-over-year earnings growth is expected to be 29.6%.
• Aggregate earnings-per-share estimates rose 1.4% during the third quarter, contrasting with a 2.2% average quarterly decline over the past five years.
• Upward earnings revisions were concentrated in three of 11 sectors, with energy & information technology leading.
• Information technology earnings growth is projected to exceed 65%, driven largely by semiconductors & related equipment.
• Over the past 10 years, 77% of S&P 500 companies beat earnings estimates, exceeding forecasts by 8% on average.
• Sixteen of the 19 companies that have reported so far have beaten estimates, with aggregate earnings exceeding forecasts by 4.9%.
• Third-quarter revenue growth is expected to be 12.4%, compared to 29.6% earnings growth.
• The estimated net profit margin is 15.0%, up from 13.0% a year earlier & a five-year average of 12.6%.
• Consumer spending shows resilience among middle- & higher-income households, while lower-income households face greater pressure.
• Forecasts indicate consumer spending growth will remain resilient in the third quarter but slow in the fourth quarter.
• Five major U.S. cloud & AI infrastructure companies issued $132 billion in debt through July to fund capital expenditures.
• Analysts project earnings growth of 28.0% for the fourth quarter & 15.8% for full-year 2027.
• Potential headwinds for future profits include slower revenue growth, higher debt-servicing costs, & rising depreciation.
• The forward price-to-earnings ratio is 19.1, matching its 10-year average & falling below its five-year average of 19.8.
• Since June 30, the index price rose 3.5% while forward earnings estimates rose 10.4%, reducing the valuation multiple.