What Surprising Earnings Strength Could Signal for Markets

Earnings growth for the S&P 500 has climbed from roughly 8% in early August to more than 13% today, as companies clear the bar with room to spare. About 82% of firms have beaten expectations, well above average. 

And while AI continues to dominate headlines, this season has shown that strength is broad-based. Most sectors topped estimates, with industrials and health care leading the pack. Other sectors, like consumer discretionary, financials, and, yes, technology, posted solid gains that helped lift overall growth. 

That said, higher valuations mean we should expect more volatility along the way. The S&P 500 typically sees about a 14% decline in any given year, even when most years finish in positive territory. We see that as natural volatility, part of the rhythm of a long bull market, not a sign of something breaking. 

So yes, valuations are elevated, but when earnings keep outrunning expectations, that's a good problem to have. The market doesn't need prices to fall when profits keep rising. For a deeper dive into this topic, read our Monthly Investment Commentary for November. 

If you have any questions, please reach out to your advisor. We're here to help. 

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