(Oct 27): The S&P 500 is on course to have the most companies delivering sales beats in about four years this earnings season, with Corporate America seeming to cope just fine with the impact of tariffs.
Almost 70% of index members to have reported so far have exceeded third-quarter sales estimates, according to a Bloomberg Intelligence earnings tracker. That’s the highest proportion of positive surprises since the post-Covid-19 revival in the final three months of 2021.
US companies appear to be fairly unscathed by tariffs so far, protecting their margins through a combination of price increases and cost cuts. Meanwhile, the magnitude of the sales beats is also near the highest since the post-pandemic boom: companies have exceeded estimates by 2.4% in aggregate, against a historical average of 0.5%, according to strategists at Deutsche Bank AG.
“Sales beats have correlated well with inflation surprises historically and likely partly reflect the impacts of tariffs on pricing this time,” Deutsche Bank’s Bankim Chadha and Parag Thatte wrote in a note.
Meanwhile, with readings on the US economy and job market still holding up, and further interest rate cuts from the Federal Reserve on the way, the profit outlook is looking increasingly brighter for 2026.
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“It’s early in earnings season but this could be an initial indication that top-line growth is firming into next year, in line with our view,” wrote Morgan Stanley strategists led by Michael Wilson. His team sees revenue beats running at double the historical rate as the “standout” feature of this earnings season.
The view among most Wall Street strategists is that the strongest earnings and sales growth remains concentrated in megacap and technology stocks. But other sectors are delivering decent profit increases, helped by favourable comparables. Financials, real estate, materials and utilities are all showing double-digit earnings gains so far, according to Deutsche Bank strategists.
Even so, the flurry of beats isn’t keeping everyone bullish. The current positive trend may not be easy to sustain, according to RBC Capital Markets strategist Lori Calvasina.
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“We think earnings are providing a solid foundation for the US equity market but that it will be difficult to replicate the same kind of surge in earnings optimism that helped power markets higher in the last reporting season,” Calvasina said.
There’s still a long way to go this season, with companies accounting for 50% of the S&P 500 market capitalisation due to report this week, including most of the large artificial intelligence hyperscalers like Microsoft Corp, Alphabet Inc and Meta Platforms Inc.
Still, the positive beginning is keeping sentiment upbeat, especially given encouraging news on trade negotiations, strong earnings from banks and financial firms and increased forecasts from a majority of companies.
JPMorgan Chase & Co strategists led by Dubravko Lakos-Bujas note that about 66% of companies have had “double beats” of sales and net income compared with just 51% over the last four quarters, based on constant index constituents.
They also note that for 2026, EPS estimates have been revised up by 0.3% to US$305.03, a 14.1% year-on-year increase. That “implies growth acceleration to above-trend next year,” according to Lakos-Bujas and his colleagues.
