S&P 500 Q3 Earnings Season Commences with Positive Estimate Revisions

Q3 Earnings Season Begins with Upward Estimate Revisions

The third-quarter earnings season for the S&P 500 has commenced, marked by an unexpected trend of positive estimate revisions that contrasts with historical patterns. Analysts are projecting a +5.7% year-over-year earnings growth for the S&P 500 on +6.1% higher revenues, an upward revision from initial forecasts.

Key Financial Institutions Lead Early Reports

This week, approximately 80 companies, including 35 S&P 500 members, are scheduled to report their Q3 results. The Finance sector dominates the early reporting calendar, with major institutions such as JPMorgan Chase & Co. (JPM) and Bank of America Corporation (BAC) leading the disclosures.

JPMorgan is anticipated to report earnings per share (EPS) of $4.83 on revenues of $44.86 billion. These figures represent year-over-year increases of +10.5% for EPS and +5.2% for revenue. Notably, earnings estimates for JPMorgan have seen positive revisions, rising from $4.72 a month ago and $4.50 three months prior.

Bank of America is expected to deliver $0.94 EPS on $27.1 billion in revenues, corresponding to year-over-year increases of +16.1% for EPS and +7% for revenue. Unlike JPMorgan, estimates for Bank of America have remained largely unchanged since the quarter commenced.

Beyond finance, bellwethers like Johnson & Johnson, United Air Lines, and CSX Corp. are also slated to report, contributing to the broader market picture.

Analysis of Shifting Estimate Trends

A significant characteristic of this earnings season is the shift in estimate revision trends. Historically, analysts tend to lower earnings forecasts as a quarter progresses. However, for Q3, estimates have seen notable upward revisions, particularly since July, a phenomenon described as the "most significant shift in the post-COVID period." This positive momentum has been critical for the aggregate S&P 500 outlook, largely driven by favorable revisions in the Finance and Technology sectors, which together account for nearly half of the index's total earnings. While six of the sixteen Zacks sectors saw upward revisions, ten sectors, including Basic Materials, Medical, Consumer Staples, and Transportation, experienced downward pressure on their estimates.

Broader Market Implications and Valuation Context

The current expectation of +5.7% earnings growth for the S&P 500 for Q3, if realized, would mark the slowest growth pace for the index in the last two years, specifically since Q3 2023. Despite this, the consistent positive revision trend since July, a contrast to the first two quarters of the year, suggests a more robust underlying corporate performance than initially anticipated. This optimism, however, comes with a caveat. The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 stands at 22.8, exceeding the five-year average of 19.9 and the ten-year average of 18.6. This expansion in multiples indicates that investors may be factoring in accelerated earnings growth beyond current estimates or are accepting lower future returns, raising some valuation concerns. The Finance sector specifically is projected to see Q3 earnings increase by +12.7% year-over-year on +6% higher revenues.

Expert Commentary Highlights Confidence

The unusual trend of analysts raising earnings estimates during the quarter, rather than cutting them, suggests a "genuine confidence in corporate performance," according to market observers.

"This marks a stark departure from typical quarterly patterns, where analysts tend to lower their forecasts as more information becomes available about trading conditions."

This positive guidance rate of 50% from S&P 500 companies is notably higher than the five-year average of 43% and the ten-year average of 39%, highlighting a more optimistic corporate outlook.

Outlook: Validating Future Trends

The initial reports from key financial institutions this week will be pivotal in validating the observed positive revisions and setting the tone for the remainder of the Q3 earnings season. Furthermore, this positive revisions trend is already evident for Q4 2025, with favorable revisions in sectors such as Finance, Technology, and Energy. The performance of companies like JPMorgan and Bank of America will be crucial in confirming these forward-looking trends. Investors will closely monitor actual reported figures against revised estimates to gauge the true resilience of corporate earnings and their implications for broader market direction.