Earnings and economy keep the rally going

Record highs, robust Q3 beat rates (86%) and rising EPS forecasts point to staying power as investors eye Big Tech results and AI spending amid a firm economy.

Market momentum and backdrop

Wall Street’s surge isn’t just about artificial intelligence. Strong earnings and a still-sturdy economy are helping push stocks higher—and could keep doing so—while investors brace for a pivotal week for Big Tech.

The S&P 500 and Nasdaq Composite finished at new highs on Friday, each logging more than 30 record closes since the start of 2025. Stocks climbed again on Monday on hopes that a planned meeting Thursday between President Donald Trump and China’s Xi Jinping could yield progress on trade. That optimism sits alongside concerns that gains of roughly 15% for the S&P 500 and 20% for the Nasdaq during the third year of a bull market are unusual, that tariffs remain unsettled, and that some AI spending may be feeding on itself. All of which raises the stakes for this week’s “Magnificent Seven” earnings.

Earnings beats are broad

Early results argue against immediate pessimism. With about a third of S&P 500 companies having reported third-quarter numbers, 86% have topped profit expectations, versus a roughly 20-year median of 73%, according to 22V Research’s Dennis DeBusschere. Sales surprises have been similarly broad, with 83% beating estimates compared with a 63% median. Economic readings have also stayed supportive.

EPS forecasts keep climbing

“Aggregate S&P 500 earnings so far in the third quarter—and through 2025—have consistently surprised to the upside,” writes Trivariate Research President Adam Parker.

Contrary to the view that Wall Street forecasts are perpetually rosy, he notes that analysts have been too conservative in recent months, despite earlier worries this year about tariffs and a slowdown. The consensus earnings-per-share estimate for the S&P 500 has risen to $269 from $263 at the start of the quarter, with technology, communication services, and financials contributing significantly to the increase. Parker adds that it’s unusual to see marketwide estimates grind higher for 18 months, reflecting companies delivering rather than merely lowering the bar.

Big Tech’s pivotal week

That conviction will be tested by results from Alphabet, Amazon.com, Meta Platforms, Microsoft, and Apple. Analysts at SpearPoint Management say the setup looks favourable—especially for Microsoft, Meta, and Amazon, which have lagged since last quarter—leaving room for upside if they execute. They point to steady growth in cloud computing, firmer advertising trends, and continued heavy AI investment as signals of confidence in the technology’s development. The AI narrative is maturing, they add, with investors focusing more on usage, returns on invested capital, and product road maps—shifting the question from whether AI will happen to how profitable it can be.

Expectations, breadth, and volatility

Still, expectations are high and somewhat vague, DeBusschere cautions, making it hard to predict what could spark either a selloff or another sharp leg higher, especially in AI-adjacent stocks favoured by retail traders. Beyond the mega-caps, investors will be watching other tech names that claim an AI tailwind; they need to show improving earnings to prove the benefits are spreading beyond the top seven.

Risks, rotations, and the AI runway

Parker also flags the potential for a setback, such as a sharp rotation beneath the surface of the indexes or even a brief growth scare before year-end. Given how much of the market is tied to the AI trade, he expects occasional violent reversals along an otherwise upward path. Even so, he and other watchers believe the U.S. remains quarters—or years—away from the point where data center construction becomes excessive. In his view, the end of the AI trade isn’t close.

Valuation context

On valuation, DeBusschere argues that easy financial conditions, firm economic data, and stronger-than-expected productivity support current prices. By his math, the market doesn’t look stretched when comparing expected future cash returns with the 10-year Treasury yield.

Bottom line

Big Tech and AI will dominate the headlines this week, but broad earnings beats and a resilient economy suggest this rally is supported by more than seven stocks—even if volatility crops up along the way.