With the lack of economic data due to the government shutdown, earnings data becomes even more important. Q3 earnings kicked off this week and the results have been solid so far. 13 S&P 500 megacaps (over $100 billion market cap) plus Taiwan Semi (TSM) reported results this week. 12 of the 14 (86%) beat their earnings and revenue estimates and the results came in an average of 7.1% and 2.5% above estimates for EPS and sales respectively.

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As a result, forward earnings (estimated earnings to be reported over the next 12 months) and the trailing earnings already reported, have both continued to make new all time highs.

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As of today, we’re looking at about 10% EPS growth for the S&P 500, with estimated growth rates of 14% and 13.5% for 2026 & 2027 respectively.

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Stock market returns are largely a function of earnings growth and interest rates. We already saw that earnings growth is firmly positive, but interest rates are also favorable. The 10 year rate just made a new 52 week low yesterday, breaking below the psychological 4.0% level for a day at least. The 10 year has moved down from 4.5% to start 2025, to below 4.0% today.

Lower rates make earnings more attractive. And thats exactly what is happening despite all the potential landmines out there. But valuations remain stretched by all metrics. The S&P 500 is currently trading about 20% above its 10 year average PE. This isn’t unusual in a bull market, where earnings are beating expectations at a solid pace and profit margins are expanding. But its still worth noting that stocks are not cheap by any means.

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The S&P 500 index has enjoyed a steady run off the trade war lows in April. We had another scare last Friday when trade tensions rose again. So far the market has held above its 50 day moving average (currently 6557), but if we break below, I’d be looking for a pullback that matches the size of the only real pullback within this runup. I’ve highlighted this short pullback of about 7% in the above chart, which took the S&P from 5481 to 5101. That projects a possible downside target & support zone around 6385-6296 (purple highlighted zone).

Next week, we get plenty more earnings to digest. Some big names include Netflix NFLX and Tesla TSLA, but we’ll get many more results in every sector of the economy.

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