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.