Investors focus attention on corporate earnings

S&P 500 companies are closing out the third quarter of 2025 by delivering robust earnings growth that surpasses analyst expectations. Results are driven by strong consumer spending, increased corporate technology spending, and healthy profit margins. By mid-November 2025, over 90% of companies reported quarterly results, with earnings rising 11.7% compared to 2024’s third quarter, significantly better than analysts’ 8% growth expectations.¹

Sources: U.S. Bank Asset Management Group Research, FactSet, “Earnings Insight,” November 7, 2025.

"The equity market is still trending higher. That goes back to healthy fundamentals," says Terry Sandven, chief equity strategist for U.S. Bank Asset Management Group. "Most importantly, consumer and corporate technology spending remain strong, corporate margins remain robust, and inflation doesn't appear problematic

Valuation adjustments

Two strong market performance years (+26% total return in 2023, +25% in 2024) have driven investors' valuation concerns. Earlier in 2025, negative tariff sentiment triggered a nearly 20% drop in the S&P 500, but the index has rebounded more than 37% from its April 8 lows. The S&P 500 remains near all-time highs, delivering a 17.8% year-to-date total return.²

The S&P 500's projected price-to-earnings (P/E) ratio, an important valuation measure, remains above its five-year and ten-year averages.² "It will be important that strong earnings growth persists," says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. "With today's relatively rich valuations by historical measures, companies can't afford earnings stumbles, and so far, they've hit the mark."

Broader sector leadership

Consistent economic growth has benefited equities in 2023, 2024, and 2025, with technology stocks leading the market's rally. Significant artificial intelligence (AI)-related investment spending continues driving technology company revenues. After a slow start to the year, information technology stocks now top the S&P 500, generating year-to-date returns above 27%. Market gains have broadened in 2025, as communication services, utilities, and industrial stocks deliver returns between 18% and 27%.²

Sources: U.S. Bank Asset Management Group Research, S&P Dow Jones Indices, November 12, 2025.

Assessing corporate earnings expectations

Analysts currently forecast about 9.5% S&P 500 earnings growth for 2025.¹ These forecasts may change as new information emerges, but the economy and corporate profits remain solid, even in the new tariff environment. Recent tax legislation (the “One Big Beautiful Bill Act” or OBBBA) allows companies to fully expense or depreciate certain costs, lowering taxes and stimulating investment.

Companies are revising forward earnings guidance higher, consistent with prior years’ trends. “Earnings guidance followed normal seasonal patterns, with early-year lofty expectations, followed by companies lowering guidance in the year’s first half,” says Bill Merz, head of capital market research for U.S. Bank’s Asset Management Group. “Now we’re seeing more companies revise earnings guidance higher rather than lower, signaling rising economic confidence and fundamental business model strength.”

Sources: U.S. Bank Asset Management Group Research, Bloomberg; January 1, 2022-October 31, 2025.

Earnings and stock valuations

The price to earnings or P/E ratio measures broad market valuation and is also can apply to individual stocks. It is the ratio of a stock’s current price compared to the company’s historical or anticipated earnings. For example, a stock trading at $30 per share with annual earnings of $2 per share has a P/E ratio of 15.

Currently, large U.S. stocks’ P/E ratios remain high, which investors at least partially justify by companies generating above average earnings growth. Assessing which stocks offer the best investment opportunity based on their P/E ratios is not always an “apples-to-apples” comparison. “Determining fair value has a lot to do with the underlying industry’s growth rate in which the company competes,” says Haworth. “Stock valuations have a relatively low statistical relationship with returns over the next one to five years, for example, but do have a modest relationship with longer-term returns, like a 10-year forward view.” In some cases, investors may be willing to bid up prices based not on current earnings, but on expected future profitability. “This tends to be the case, for example, with stocks that invest in new technology that may not have an immediate payoff but offer the potential of future strong earnings if they succeed,” says Haworth. “Other stocks may have lower P/E multiples, but those companies generate steadier earnings, so the payoff on the company’s investment needs to happen in a more compressed timeframe.”

The underlying economic environment

Corporate earnings drive long-term equity market performance, but factors like Federal Reserve Federal Reserve (Fed) interest rate policy can have an outsized market impact. The Fed cut rates twice so far in 2025, with investors anticipating another rate cut in either December or January.³ Lower rates reduce businesses’ and consumers’ funding costs, boosting economic activity.

Despite 2025 market fluctuations and somewhat elevated stock valuations, most underlying economic data supports the market’s upward trend. “Consumer spending remains robust overall, growing about 5% year-over-year,” says Merz. “Lower income groups face challenges, especially amid high interest rates despite recent Fed cuts, but higher income consumer spending continues driving a disproportionate share of overall consumer spending and supports corporate earnings growth.”

Year-to-date, global stock markets are outpacing U.S. stocks.⁴ “In the current environment, a globally diversified portfolio allows investors to capitalize on a broad array of opportunities,” says Haworth.

As you assess your investment options and how to best position your portfolio, consider doing so within a financial plan. Talk with your wealth professional to review whether changes to your investment strategy may be warranted to better reflect your goals, risk appetite and time horizon.