Earnings Season Halftime Report

Midway through 4Q25 earnings, the aggregate earnings growth rate stands at 13.9%, meaningfully higher than estimates from the start of the period. If this pace continues, it would represent the fifth consecutive quarter of double-digit earnings growth, a clear testament to the strength of the bull market. Thus far, 72% of companies have reported positive earnings, while 80% have posted positive sales growth. In addition, 81% of companies have surprised the market with positive earnings, providing another indication of broad-based strength. Industrials, technology, and financials have led, while consumer discretionary and real estate have continued to lag. 

Since our last note, the forward P/E has remained unchanged at 22.2x, still well above both the 5- and 10-year averages. Given the elevated valuations, the market is applying greater scrutiny to company results. Microsoft’s recent performance is a notable example: Despite beating earnings expectations, higher-than-expected capital expenditures reinforced concerns about elevated AI spending, sending the stock down as much as 11% the following day. 

While this high bar may prevent excessive enthusiasm, it may also heighten volatility. Monitoring whether this pattern persists through the remainder of the earnings season will be important, as it may signal whether markets are drifting toward irrational exuberance. 

The bottom line: Against this backdrop, we continue to favor high-quality businesses with durable pricing power and the operational flexibility to navigate a more demanding earnings environment. 

Source: Bloomberg, FactSet. 

Sebastian Teper contributed to this article.