Third-quarter earnings season begins with S&P 500 profit growth forecast near 30%

Third-quarter earnings season began this week, CNBC reported on 7 October. Analysts expect nearly 30% year-over-year earnings growth for the S&P 500, according to consensus estimates compiled by FactSet, up from 26.7% on 30 June. The market closed at record highs on Tuesday as investors bet that AI capex — capital spending on artificial intelligence — would not be derailed by higher bond yields, CNBC reported.

Tech accounts for 40% of the S&P 500, according to CNBC, which described it as the critical sector for the index. Estimated earnings-per-share growth for the tech sector has risen to 65% from 57% on 30 June, partly on upward revisions for Nvidia and Micron Technology, FactSet noted. CNBC reported that Micron delivered a strong quarter, which it described as a positive sign for broader AI chip demand.

Growth is also forecast beyond the largest companies. The Magnificent Seven are expected to average 20% growth, while the other 493 stocks in the S&P 500 are forecast to deliver 27% year-over-year gains, according to Russell Investments. Economist Ed Yardeni, head of Yardeni Research, said S&P 400 MidCap operating earnings should rise 19% in 2026, and that analysts expect S&P 600 SmallCap earnings to increase 21% this year and 16% in 2027.

Barclays strategists said in a note this week that S&P 500 profits are on track to rise 30% this year, and wrote that "2025-27 is set to be the fastest three year period of earnings growth (absent a recession rebound) in many decades." Ulrike Hoffmann-Burchardi, CIO Americas and Global Head of Equities for the UBS Chief Investment Office, said in a note on Wednesday that investors should remain positioned for market upside, and that UBS forecasts the S&P 500 to reach 8,400 by June next year.

Other data cited by CNBC pointed to weaker market breadth. Morgan Stanley said only about 20% of stocks were trading above their 50-day moving average at the end of September, down from 70% in midsummer. Of the 504 stocks in the S&P 500, nearly 38% are off 20% or more from their 52-week high, and companies down at least 50% include CoStar Group, AppLovin, Boston Scientific, Oracle and Coinbase Global, according to CNBC.

At the sector level, every S&P 500 sector is expected to post growth, but eight have seen negative revisions in bottom-up EPS estimates since 30 June, according to FactSet. Those revisions were led by materials at -10.2%, consumer staples at -4% and health care at -3.3%, FactSet said.