What You Need to Know About Q3 Earnings
Last week was a wild one for Wall Street. After several days of volatile trading, the markets ended Friday on a high note. Another batch of great earnings reports and encouraging economic data led stocks to surge into the weekend. And it seems that bullishness has staying power.
Today, stocks are once again surging to fresh record-highs. And we think this red-hot rally will persevere for one big reason: continued strong earnings.
Right now, we’re about 40% through the third-quarter earnings season. So far, the numbers have been very good.
For the ~40% of S&P 500 companies that have reported so far, about 75% have topped earnings per share (EPS) estimates. On average, EPS is clocking in about 6% above estimates. And so far for Q3, the blended EPS growth rate is above 3%.
In other words, most companies are beating estimates by a wide margin. And earnings are growing at a very healthy pace.
That’s great news for stocks.
But just wait; it gets even better…
Earnings Estimates Keep On Rising
Current estimates suggest that profits across the S&P will grow by more than 13% next quarter and about 13% the quarter after. And in the two quarters after that, profits are expected to grow by about 11% and 17%, respectively.
So… not only has this earnings season been very good, with most companies topping estimates and reporting strong growth. But the profit outlook calls for earnings growth to get progressively better over the next several quarters as well.
That’s why we think this record-setting rally in stocks will continue.
After all, as go earnings, so go stocks. Just look at the chart below.
It graphs the S&P 500’s earnings (blue) with the index’s price (white) over the past 30 years. Unsurprisingly, the two lines track one another almost perfectly.
Stocks follow earnings.
And we see earnings charging meaningfully higher over the next 12 months. Therefore, stocks should majorly rise over the coming year, too.
The Final Word
Considering the exceptionally bullish earnings results we’ve been seeing this season, we really like the outlook for Wall Street.
But we especially like the outlook for AI stocks. That’s where we expect to see the biggest growth over the next few quarters.
This quarter, for example, tech companies are growing earnings by about 16% year-over-year – the best EPS growth rate among any sector.
And with estimates on the rise, things should only get better from here.
In fact, tech companies are projected to grow earnings by more than 20% next year.
So, with tech earnings already growing by more than 15% – and now on track to expand even faster next year – we strongly believe that AI stocks will remain the leaders of this rally.
The investment implication? Now is a great time to load up on the most promising AI stocks.
And finding the best AI stocks the market has to offer has become a bit of a singular focus for us.
Check out a few of our favorite picks to profit in this lasting rally.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
