Wall Street expects S&P 500 earnings to grow 29.6% in the third quarter, but investors say guidance from AI-focused tech firms may decide whether the stock rally lasts. Key Points: Analysts e
Wall Street expects S&P 500 earnings to grow 29.6% in the third quarter, but investors say guidance from AI-focused tech firms may decide whether the stock rally lasts.
Key Points:
- Analysts expect S&P 500 earnings to rise 29.6% in the third quarter, the third straight quarter above 25% if it holds.
- A record 72 companies issued positive guidance, and 44 of them are technology firms.
- Investors say AI spending plans and high bond yields will shape how markets react.
Members of an investment panel argued that company outlooks, not the headline growth figure, will decide whether stocks hold up as reporting season opens with big bank results this week. Analysts lifted third-quarter estimates by 1.4% from Jun. 30 to Sept. 30, FactSet data show, while estimates fell 2.5% in an average quarter over the past decade. They see growth cooling to a still double-digit 15.8% in 2027 from 32.7% this year.
A record 72 S&P 500 companies issued positive earnings guidance for the quarter, beating the previous high of 65 set in 2021. Of those 72, 44 are technology firms.
Early results look solid, with 84% of the 19 companies reporting through Oct. 9 topping estimates. Rates add pressure, though. The 10-year Treasury yield closed at 5.24% on Oct. 9 after ending at 5.31% on Oct. 5.
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Strategist Ed Yardenisaid the quarter is shaping up as "another blockbuster," with analysts expecting all 11 sectors to grow both revenue and earnings, a feat seen only once before in 25 years. Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, suggested tech and AI could drive 70% to 80% of the growth, with energy and materials playing a smaller role.
Still, one panelist said the bigger test for tech is whether hyperscalers, the cloud giants building AI data centers, keep spending. Executive interviews suggest no one is pulling back, the panelist added, because cutting spending risks losing the AI race.
Another panelist warned that market reaction may outweigh the data, pointing to Nvidia, whose shares have at times lagged strong results.
Breadth looks thin, with more than half of S&P 500 stocks trading below their 200-day averages, a panelist noted. Steadier yields, this week's inflation data and bank earnings could help other sectors catch up, one panelist said, while another called financing the counterpoint, citing reports that investors are growing wary of AI-related debt.
Actual growth has beaten end-of-quarter estimates in 37 of the past 40 quarters. Over the last four quarters, companies topped estimates by 13.8% on average, lifting the growth rate by 14.1 percentage points from quarter-end through each reporting season. Even the most conservative of FactSet's three benchmarks points to third-quarter growth near 35.6%.
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