(Bloomberg) - The proportion of US companies beating earnings expectations this quarter is the highest in more than four years, providing stock investors with relief at a time the rally is slowing.
About 85% of S&P 500 firms to have reported third-quarter earnings so far have surpassed profit estimates, on course for the best performance since 2021, according to data compiled by Bloomberg Intelligence.
It’s still early in the season, given that less than a fifth of the index’s market capitalization has announced results, but it’s an indication that US profits remain strong in the face of tariffs and an uncertain economy.
A majority of S&P 500 firms typically surpass expectations, but this season stands out considering that analysts had set the bar higher by raising projections heading into the reporting period. Robust earnings and signs of sustained investment in artificial intelligence are countering threats to stocks from China trade tensions and the government shutdown.
“US companies should continue to deliver superior earnings growth supported by a robust AI investment cycle, ongoing deficit spending, and a still resilient consumer,” JPMorgan Chase & Co. strategists led by Dubravko Lakos-Bujas wrote in a note.
He anticipates S&P 500 members will deliver another quarter of double-digit earnings growth at about 12%. The JPMorgan team’s estimates are above consensus, which forecasts an increase of 7.7% in the third quarter compared with a year earlier.
The beats are coming from various sectors. Among banks, Citigroup Inc. and Morgan Stanley surpassed estimates. Meanwhile, General Motors Co. soared after raising its profit guidance on buoyant truck sales and some tariff relief. Coca-Cola Co. also topped expectations as consumers snapped up the company’s beverages despite higher prices.
Better-than-expected earnings are a potential source of market confidence during the economic data vacuum caused by the US government shutdown, said Marija Veitmane, head of equity research at State Street Global Markets.
“It is perhaps too early to make strong pronouncements on the health of corporate America, but we note two important trends — larger companies sound upbeat on navigating the current regulatory uncertainty as well as talking confidently about future investments and capex,” Veitmane wrote in a note.
The S&P 500 has climbed 15% this year, driven higher by the AI theme, although gains have stalled in October. Morgan Stanley strategist Michael Wilson earlier this week said stocks still face unresolved risks around trade tensions and slowing earnings revisions, which should keep investors cautious in the near term.
By Farah Elbahrawy
With assistance from Subrat Patnaik
