Can Strong Earnings Justify High Stock Valuations?

The expectation is for 2025 Q4 earnings for the S&P 500 index to increase by +7.7% from the same period last year on +7.9% higher revenues. This would be the 10^th quarter in a row of positive earnings growth, with the Tech sector expected to remain a key growth driver.

There is justifiable optimism among investors about the overall earnings picture. A big part of this optimism reflects continued earnings momentum in the Tech sector, but there are also signs that some of the other sectors are also on the cusp starting to become materials growth contributors. This has started showing up in earnings estimate revisions, with estimates in the aggregate starting to inch up since the start of the second half of 2025.

For the stock market to build on its recent gains, it will be essential for this favorable revisions trend to not only remain in place, but actually start accelerating. This coming earnings season will be critical to giving us visibility on the outlook, as we will need to see management teams give us reassuring guidance about the coming periods.

A key sector to that end is Finance, which had come out with positive earnings in the Q3 reporting cycle, with management teams overall providing a favorable view of underlying business trends. Banks will be kick-starting the Q4 earnings season next week and the early results from the likes of JPMorgan JPM, Citigroup C and others will set the tone for the rest of the reporting cycle.

For more details about the Q4 earnings season and the overall earnings picture, please check out our weekly Earnings Trends report here >>>Broad-Based Earnings Growth Expected in 2026

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This article originally published on Zacks Investment Research (zacks.com).

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