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Markets

Third-Quarter Earnings Season Opens With S&P 500 Profit Growth Near 30%

Third-quarter earnings season began this week, with S&P 500 profit growth expected near 30% year over year, led by tech and AI chipmakers. Analysts and banks see earnings driving further market gains, though rising Treasury yields and weak market breadth pose risks.

AI News Feed · 2026-10-08 04:29

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 June 30. Technology is the critical sector, accounting for 40% of the index. Estimated EPS growth for the tech sector has increased to 65% from 57% on June 30, helped partly by upward revisions for Nvidia and Micron Technology, FactSet notes.

Strong results from AI chipmakers and other large technology names have eased concerns that the cycle is 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.

Earnings growth is also broadening beyond the so-called Magnificent Seven. Those companies 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. Below large caps, S&P 400 MidCap operating earnings should rise 19% in 2026, economist Ed Yardeni of Yardeni Research notes. Analysts expect S&P 600 SmallCap earnings to increase 21% this year and 16% in 2027, he adds.

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

Still, stocks beyond the Magnificent Seven and major chipmakers could use an earnings lift, and market breadth has deteriorated. Only about 20% of stocks were trading above their 50-day moving average at the end of September, down from 70% in midsummer, according to Morgan Stanley. Of the 504 stocks in the S&P 500, nearly 38% are off 20% or more from their 52-week high; companies down at least 50% include CoStar Group, AppLovin, Boston Scientific, Oracle and Coinbase Global.

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 June 30, led by materials at -10.2%, consumer staples at -4% and health care at -3.3%, according to FactSet.

Rising bond yields could still spoil the party even if index profits are strong. The 10-year Treasury yield just hit a 24-year high above 5.36%, up from 4.75% in August. Some of the increase reflects strong economic growth, but it also bakes in persistent inflationary pressures. Core PCE inflation, the Federal Reserve’s preferred gauge, was 3% in August. A few more rate hikes may be needed to bring inflation closer to the Fed’s 2% target, assuming the economy does not dip into a recession. Rising interest rates pressure high-yield sectors such as utilities, consumer staples and real estate. Banks could also feel the pinch on their fixed income portfolios, racking up losses on balance sheets.

For now, the rise in rates has not been enough to dent the AI trade and other forces fueling earnings growth. Barclays strategists argue the market could even shrug off a one percentage point rise in rates. “If earnings are growing at 30% and real rates rise 100bp, the earnings growth (if not priced in) still has the upper hand,” they note. “The equity market understands this — which is why stocks stubbornly refuse to fall.”

Investors should watch big banks reporting next week for insights into how higher rates are affecting lending, M&A activity and the IPO pipeline. JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo report on Oct. 13. Earnings will also test the market’s pricey multiple. While the S&P 500’s forward price-to-earnings ratio has dropped to about 19 times, Bank of America says the index “reads expensive” on 17 of 20 valuation measures.

Editor's Summary

Third-quarter earnings season began with analysts expecting nearly 30% profit growth for the S&P 500, led by technology and AI chipmakers such as Nvidia and Micron. Banks including Barclays and UBS see earnings supporting further stock gains, but weak market breadth, negative estimate revisions in several sectors and 10-year Treasury yields above 5.36% present risks. Big bank results on Oct. 13 will offer the next test.