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Earnings Improvement Is Broadening

October 07, 2025

Time to Read: 2 minutes

Earnings growth is on investors’ minds, especially as it broadens beyond the big tech stocks that have shown the most improvement in the past. We believe this is a positive sign for continued equity gains.

Equity market performance this year has been driven by better-than-expected earnings. With big tech dominating much of this growth, some investors have become concerned about concentration risk among technology stocks. However, current forecasts suggest earnings are improving beyond big tech into other sectors.

As of today, the market capitalization-weighted S&P 500’s earnings are forecasted to grow 10.1% in 2025 compared to 6.7% for the index’s equal-weighted counterpart, representing a gap of 3.4%. However, despite concerns about slowing jobs growth and the impact on the economy, that gap is expected to narrow in 2026 with S&P 500 earnings forecasted to grow 13.5% compared to 12% for the equal-weighted index — only a 1.5% difference.

Positive earnings revisions are broadening and should continue to support U.S. equities. Additionally, we are entering a seasonally favorable period, as the fourth quarter has historically been the best performing quarter of the year. These factors, combined with the Federal Reserve’s easing of monetary policy and improving margins, should be positive for stocks through year end.

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Gross domestic product undershot expectations last quarter, but the shortfall appears driven more by the temporary government shutdown than broad-based weakness. Consumer demand remains resilient, and with supportive fiscal policy, easing financial conditions and a steady labor market, the outlook points to a modest acceleration in economic activity this year.

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Narrow Drawdown?

Equity volatility is rising, but all is not what it seems. The technology sector is weighing on the S&P 500 while value and cyclical stocks lead. A market rotation is underway as many investors begin to favor companies beyond tech.

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Capex as a Catalyst

Improved business confidence and recent tax legislation are compelling corporations to reinvest their cash flows in their businesses. We believe this is a positive signal for economic growth.

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Global Leading Indicator Turning Higher

Headline volatility persists and yet the global growth outlook continues to improve. We examined a leading indicator that supports diversifying equity holdings if you haven't already.

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