Indiana Trust Wealth Management
Investment Advisory Services
by Clayton T. Bill, CFA
Vice President, Director of Investment Advisory Services

  • The U.S. equity market, represented by the S&P 500 index, rose 1.9% for the week.
  • The wide breadth of companies outperforming quarterly earnings expectations - and the fact that those expectations have been raised since June - indicates unusual corporate profit strength during the three months ending September 30.

Corporate earnings season is underway, the quarterly ritual when publicly traded companies disclose their earnings per share (EPS) and other financial performance metrics. Stock market investors care about profits. While one quarter or year of earnings may not matter a great deal in the long run, quarterly corporate earnings releases are watched closely.

At the start of every year, equity research analysts at investment banks such as JP Morgan and Bank of America Merrill Lynch form preliminary EPS estimates. Executives attempt to manage expectations, and analysts respond to new information throughout the year. After initial earnings estimates are published, they are almost always lowered, for one reason or another, especially right after earnings season starts.

Leaving the weird 2020/2021 earnings dynamics aside, EPS expectations have been lowered virtually every quarter since 2010.

Source: Sam Ro, Deutsche Bank, February 2025

It is hardly surprising, then, that most companies can beat those estimates. Earnings “beats” are one of the most enduring features of the stock market. Over the last 20 years, on average over 70% of the S&P 500 beat quarterly estimates.
 

Source: Sam Ro, Deutsche Bank, October 2025

So, it is not exactly breaking news that companies are outperforming expectations this year. That trend is continuing as third quarter earnings announcements have begun to trickle out this month.

However, George Pearkes at Bespoke Investment Group noted this week that there are a few unusually strong aspects to the current earnings season worth considering. First, compared to previous quarters, the third quarter of 2025 has the third-strongest earnings beat rate on record and the strongest revenue beat rate.

Perhaps most surprisingly, these record high beat rates are coming off a quarter where earnings and revenue expectations were raised by analysts. Mr. Pearkes notes that earnings expectations have been steadily rising since June. These combinations of occurrences make the third quarter of 2025 an outlier across the last fifteen years.

Given the noise in the financial news cycle, it may feel strange that the stock market has been rather calm. Corporate earnings strength in the face of rising expectations could help explain the lack of volatility lately.

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