Third-quarter earnings season kicks off this week and as results roll in they should reveal what the market is eagerly anticipating: another blockbuster quarter for S&P 500 profits.
The market closed at record highs Tuesday as investors bet that AI capex — a major force for the markets and economy — won't be derailed by higher bond yields. Assuming upbeat guidance from key companies — along with a little help on the bond side — earnings could propel stocks to a strong finish for the year.
At the index level, profit growth should be stellar. Analysts expect nearly 30% year-over-year earnings growth for the S&P 500, according to consensus estimates compiled by FactSet. That forecast is up from 26.7% on June 30th.
Tech, of course, is the critical sector, accounting for 40% of the S&P 500. That would be a worry if profit estimates were falling, but they're going in the opposite direction. Estimated EPS growth for the tech sector has increased to 65% today from 57% on June 30, thanks partly to upward revisions for Nvidia and Micron Technology, FactSet notes.
Indeed, strong results from AI chipmakers and other big tech names have eased some of the consternation about the cycle topping out. Micron delivered a knockout quarter, a positive sign for broader AI chip demand. On the consumer side, Meta Platforms' launch of its Muse agent has set off an arms race to capture AI-enabled consumer e-commerce.