S&P 500 earnings beats are now the norm. What the stock market needs

Will 30% profit growth and upbeat tech guidance be enough to keep the rally going? We’ll soon find out.

Third-quarter earnings season kicks into gear Tuesday with JPMorgan Chase and other big banks. Expectations are steep: consensus forecasts call for nearly 30% year-over-year growth, according to FactSet. That’s up from around 27% three months ago. But 30% or more should be doable — S&P 500 profits have topped quarterly estimates by healthy margins since mid-2023.

Tech will have to do its part at beating estimates and lifting guidance. For now, the sector shows no signs of slowing. Analysts expect 65% gains for tech profits, up from an estimated 57% growth three months ago. Upward revisions for Nvidia, Micron Technology and Dell Technologies are doing the heavy lifting, according to FactSet.

Also positive, profit growth is broadening beyond the Mag 7. The other 493 stocks in the S&P 500 are forecast to deliver 27% year-over-year gains, topping the Mag-7 average, according to Russell Investments. S&P 400 MidCap operating earnings should rise 19% in 2026, notes Ed Yardeni, head of Yardeni Research.

The first earnings test comes with the big banks. JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo, reporting Tuesday, should reveal how steeper interest rates are impacting loan growth, balance sheets, M&A activity and the IPO pipeline. JPMorgan — the largest U.S. bank — will be critical, along with comments from CEO Jamie Dimon who tends to move markets with his outlook.

Financials are on a knife’s edge; the sector is hovering around its 200-day moving average, a key technical indicator, after falling 5% since August 31. Analysts see rising interest rates starting to sting loan growth and fixed-income securities held on balance sheets.

The weakness could make for a relief rally, but earnings and guidance could go either way, pushing the stocks up or down, notes Julian Emanuel, senior managing director at Evercore ISI. “There will be volatility as investors hang on every word from the Big Banks this week,” he said in a note.

Emanuel remains bullish on the market, however, and tech in particular. Several other strategists concur.

Goldman Sachs shifted to an “overweight” stance on equities Monday, saying “growth remains supportive.” The bank’s strategists see a favorable macro climate with low recession risk. And they expect inflation to ease in 2027 — all of which points to “more of a ‘Goldilocks’ backdrop,” according to a note by Christian Mueller-Glissmann, head of asset allocation at Goldman Sachs Research.

For positioning, he recommends a “barbell of AI beneficiaries and selective rate-sensitive, high-dividend and low-volatility stocks that could benefit from eventual rate relief.”

The setup also looks favorable because multiples have fallen, notes Lisa Shalett, chief…