The 4Q 2025 earnings season will kick off next week. By the first week of February, 68% of S&P 500 market cap will have reported. NVDA, the largest stock, will report on February 25th. For Q4 2025, the estimated (year-over-year) earnings growth rate for the S&P 500 is 8.3%. If 8.3% is the actual growth rate for the quarter, it will mark the 10th consecutive quarter of earnings growth for the index. For 2026, we forecast S&P 500 EPS will grow by 12% to $305, driven by sales growth of 7% alongside margin expansion of 70 bp. The 4Q earnings season will represent another important test for big tech and the AI trade. Consensus estimates show hyper scaler year/year capex growth slowing from 75% in 3Q to 54% in 4Q and to 24% by the end of 2026. Overall, 107 S&P 500 companies have issued quarterly EPS guidance for the fourth quarter. Of these companies, 57 have issued negative EPS guidance and 50 have issued positive EPS guidance. At the sector level, the Information Technology sector has the highest number of companies issuing positive EPS guidance of all 11 sectors at 32. At the industry level, the Semiconductors & Semiconductor Equipment (9) and Software (9) industries have the highest number of companies issuing positive EPS guidance within the Information Technology sector. Heading into the start of the earnings season, both analysts and companies have been more optimistic than normal in their earnings outlooks for the fourth quarter. However, it should be noted that most of this optimism is concentrated in one sector: Information Technology. As a result, estimated earnings for the S&P 500 for the fourth quarter are higher today compared to expectations at the start of the quarter. The bottom-up target price for the S&P 500 is 8047.85, which is 15.52% above the closing price of 6966. At the sector level, the Information Technology (+25.0%) sector is expected to see the largest price increase. The Financials (+9.0%) sector is expected to see the smallest price increase. Analysts are particularly pessimistic regarding Consumer Discretionary margins.
