Record Share of EPS Increases This Quarter, But Are Economic Cracks Forming?

• More companies are lifting their EPS estimates as the bull market nears its third anniversary.

• Consumer stocks have been rallying despite a spate of economic concerns.

• We scan markets from geographic, size, and sector views to assess the landscape.

The bull market is about to turn three years old. Equities bottomed in October 2022, a time when inflation uncertainty was high and some big-name tech stocks were in outright crash mode. Little did most investors know that artificial intelligence (AI) was about to come out of left field and drive massive gains in the likes of NVIDIA (NVDA), Meta Platforms (META), Broadcom (AVGO), Palantir (PLTR), and, more recently, Oracle (ORCL).

Broadening Rally, Uneven Earnings

Global stocks found their footing in Q4 2022 and generally haven't looked back. The earnings story was less compelling across international markets and among US small- and mid-cap companies, however. Wall Street Horizon has tracked earnings trends across geographies and cap sizes since the start of the decade, and Q3 2025 is on pace for the strongest earnings-per-share (EPS) breadth yet.

Earnings Breadth at Record Levels

Notice in the chart below that the ratio of earnings growers to decliners is almost two to one. The 29.2-percentage-point gap tops the previous high-water mark of 28.6ppt notched in Q3 2021, back when companies were comparing quarterly results to the very weak mid-2020 COVID-era low.

Record-High Ratio of EPS Increases to Decreases as the Bull Market Matures*

Source: Wall Street Horizon. *Note that this chart details actual reported EPS increases/decreases quarter-over-quarter.

Now, we can interpret this in two ways:

It's bullish. A larger share of companies is churning out earnings (and free cash flow), helping to sustain the global rally. Price action underscores this logic, as the MSCI All Country World Index (ACWI) has posted a series of record closes this month alone.

It's bearish. As the old saying goes, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." Legendary investor Sir John Templeton might have grown concerned with our unofficial chart of the week, worried that we may be near peak profits and ebullient enthusiasm (although investor sentiment gauges are far from frothy).

Chances are we are somewhere in between. FactSet notes that the S&P 500^® is expected to grow EPS by 10.7% this year, with earnings growth accelerating to 13.7% in 2026.¹ Of course, profit estimates usually come down as the next calendar year approaches. Nevertheless, fundamental tailwinds feel stronger than most headwinds at the moment.

Not a Perfect Macro Palette

But there are lingering and potentially emerging challenges. Last weekend, Sherwin-Williams (SHW) confirmed it would suspend its 401(k) matching contribution starting October 1.² The Materials-sector company, with ties to the consumer economy and a Dow component, saw its stock dip on Monday.

The Ohio-based blue chip's earnings are expected to be roughly flat this year, but consensus estimates call for low-to-mid-teens annual growth in 2026 and 2027. SHW's apparent struggles stem from weak sales, high mortgage rates, and increased tariff costs.

SHW paints a cautious picture, and its situation highlights three variables that may shape US profits over the next year:

1. The One Big, Beautiful Bill Act (OBBBA) may spur capital investment and increased consumer spending in 2026.

2. The resumption of the Fed's rate-cutting cycle could help bring mortgage rates down (the average 30-year fixed mortgage rate is now closer to 6% than 7%).

3. As for tariffs, the new average effective duty is just shy of 20%, the highest in more than 90 years.

What to Watch Before EPS Reports Roll In

With still a month to go until the Q3 earnings season begins, investors should pay attention to the tone and outlooks provided at conferences and industry events. We detailed the major ones a couple of weeks ago, and volatility has already surfaced in certain industries. Interim sales, earnings, production, and volume data may also offer breadcrumbs on the macro picture. Finally, other pieces of corporate body language, such as buyback trends and stock splits, help form a broader fundamental mosaic.

Small- and Mid-Cap Outlook Improving?

Zooming out, we are encouraged to see EPS growth expectations begin to creep higher. Despite a years-long bull market, profit estimates for the SMID space have been stagnant since the bear market ended 35 months ago. The financial media is quick to point out recent strength among overseas stocks, but more favorable business conditions at home could lay the foundation for broader EPS growth in the quarters ahead.

Sector EPS Growth Leaders and Laggards

Within the S&P 500, Tech, Utilities, Materials, Industrials, and Financials are each expected to post Q3 EPS increases near or above 10%, per FactSet. The laggards include Energy, Consumer Staples, Consumer Discretionary, Health Care, Real Estate, and Communication Services. Perhaps most pivotal will be consumer companies.

Retail Sales reports from the US Census Bureau don't indicate a pronounced falloff in spending. Still, with EPS declines of about 3% year-on-year forecast for the current quarter, the aforementioned headwinds are being felt in an important part of the economy.

The Bottom Line

Global corporate EPS growth trends may be poised to hit a new record in our data history. Paired with new highs in both US and international stocks, it seems that fundamentals are firing on all cylinders. We noted some possible canaries in the coal mine, while consumer-related companies remain among the minority expected to show negative year-over-year earnings growth. Investors should stay abreast of economic indicators and industry events in the weeks leading up to the start of the Q3 reporting season.

1 Earnings Insight, FactSet, John Butters, September 12, 2025, https://advantage.factset.com
2 Sherwin-Williams suspends 401(k)-matching amid weak sales, Cleveland, Megas Sims, September 4, 2025, https://www.cleveland.com

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