How I Made $5000 in the Stock Market

Third-Quarter Earnings Should Be Strong—but the Bar Is High

Oct 13, 2025 15:34:00 -0400 by Teresa Rivas | #Markets

The third-quarter is unlikely to match the second-quarter’s big 7% beat. (Michael Nagle/Bloomberg)

Key Points

Third-quarter earnings season kicks off in earnest this week, with roughly 12% of the S&P 500 reporting results, and it is shaping up to be a good one. Yet that might not help stocks.

In a typical year, analysts start to get nervous about their third-quarter earnings per share forecasts, leading to downward revision that can contribute to a September selloff. Yet 2025 bucked that trend: September was another great month for stocks, helped in part by the lack of estimate cuts.

In fact, analysts normally would have cut between 3% and 4% since the end of June, but this was the first year since 2023 that that didn’t happen, notes Bank of America’s Equity and Quant Strategist Savita Subramanian on Monday.

“Bears worry the bar is too high, but the absence of a downward revisions has been bullish: since 2001, the median S&P 500 EPS beat after estimates were flat to up was higher (5%) than when they were cut (3%).”

Still, the third-quarter is unlikely to match the second-quarter’s big 7% beat, and there are ongoing concerns about the impact of tariffs on corporate profits. That could translate into layoffs that would hurt consumer spending.

Tech spending on artificial intelligence also has been a boon to markets, but now that even big players like Oracle are taking on debt to fund capex, some are worried that gravy train may be slowing.

Nonetheless, Subramanian is still optimistic. She is modeling for a 4% beat in the third quarter, with results bolstered by multiple tailwinds, including resilient economic data, a solid start from early reporters, positive guidance and a weaker U.S. dollar.

Citi’s Scott Chronert had a very similar take on Friday. The first and second quarters were marked by big beats as tariffs’ expected impact was delayed or minimized, and consensus estimates haven’t drifted lower as they often do in the back of the year, thanks to hopes tax changes will offset trade pain. The upshot is that he, too, is looking for a more normal 3% to 4% beat.

Things are looking up for next year as well.

“Early consensus estimates for 2026 S&P 500 EPS are moving higher,” he writes. “That is oddly positive. Normally, out year consensus estimates start too high and are revised persistently lower.”

That’s a double-edged sword, good in the sense that business trends are strong, but worrisome that the bar is already so high. In fact, expectations are part of the reason that despite big beats, many stocks’ post-earnings rallies have fizzled out.

“As the market continues to rally, the bar for a market response has risen,” wrote Trivariate Research founder Adam Parker in his analysis from last week. “This year, stocks missing on EPS or revenue have underperformed by 3.6%, the steepest penalty in 25 years, while the reward for beating is near record lows (~1%).”

That has also translated to specific stocks. Value stocks generally have had fewer beats than growth, but growth stocks that miss face harsher penalties from the market, likely because more is expected of them. Junk stocks—where the bar is quite low—outperform the most when they do deliver a beat.

The upshot is the longer the bull market rolls on, the higher expectations will get. Chronert also expects “a more volatile leg in this now three-year-old bull market, despite a solid earnings season ahead.”

Nonetheless he thinks it makes sense to use that volatility to keep buying stocks, writing that he is still “constructive on longer-term fundamentals, meaning pullbacks should be viewed opportunistically.”

In other words, good may not be good enough during third-quarter earnings season. But that shouldn’t stop investors from buying stocks.

Write to Teresa Rivas at teresa.rivas@barrons.com