Here’s something that doesn’t happen often on Wall Street: analysts actually raised their earnings forecasts during the third quarter of 2025. Yes, you read that right. While companies were busy navigating trade tensions, government shutdowns, and the usual economic uncertainties, the supposedly cautious analyst community did something it almost never does—it got more optimistic as the quarter progressed.
If you’ve been following earnings seasons for any length of time, you know this is akin to seeing a unicorn at your local coffee shop. Analysts are professionally trained pessimists when it comes to quarterly forecasts, typically slashing their estimates as reality sets in. But Q3 2025 has thrown the rulebook out the window, and the implications are fascinating for anyone trying to understand where corporate America—and the broader market—is headed.
The Upside-Down World of Earnings Revisions
Let’s start with the numbers that have Wall Street buzzing. From June 30 to September 30, earnings estimates for the S&P 500 actually increased by 0.1% on a per-share basis. Now, before you dismiss that as a rounding error, consider the context: over the past five years, earnings expectations have typically fallen by an average of 1.4% during a quarter. Looking back over a decade, that average decline stands at a more dramatic 3.2%.
Think about what this means. Every quarter, companies report results and provide guidance. Analysts digest this information, factor in economic data, and—almost invariably—conclude that their previous estimates were too rosy. It’s become such a predictable pattern that savvy investors build it into their expectations. The “analysts always lower estimates” rule has been as reliable as the sun rising in the east.
Until now.
The S&P 500 is currently projected to report year-over-year earnings growth of 8.5% for Q3, up from the 7.9% growth rate anticipated at the quarter’s end. If this holds, it would mark the ninth consecutive quarter of earnings growth for the index. More impressively, actual results are coming in well above even these raised estimates, with 86% of reporting companies beating earnings expectations—significantly above the five-year average of 78%.
When the Banks Lead, Others Follow
The early stages of Q3 earnings season have been dominated by financial institutions, and they’ve set a tone that can only be described as triumphant. JPMorgan Chase, the bellwether that kicks off every earnings season, reported earnings per share of $5.07, crushing the forecast of $4.84 by nearly 5%. Revenue came in at $47.12 billion, up 10.5% year-over-year and exceeding expectations by 4.1%.
Goldman Sachs delivered an even more spectacular performance, with EPS of $12.25 versus expectations of $11.00, driven by a 42% surge in investment banking revenue. Citigroup, Bank of America, Wells Fargo, and Morgan Stanley all joined the party, beating estimates and showcasing resilience that few would have predicted just months ago.
The Financials sector as a whole has seen its earnings growth rate jump to 18.2% from the 11.4% expected at quarter-end. This surge comes from an unlikely cocktail of favorable conditions: a Federal Reserve that finally began cutting rates (down to 4.00%-4.25% as of September), a revival in investment banking activity fueled by AI-driven M&A, and wealth management divisions performing exceptionally well.
But here’s where it gets interesting—and a bit uncomfortable. While the major banks are thriving, regional banks are facing a very different reality. Zions Bancorp disclosed a $50 million charge-off tied to alleged loan fraud, while Western Alliance revealed it had sued a borrower over similar issues. These revelations, combined with exposure to bankrupt auto lenders like Tricolor Holdings, sent regional bank stocks tumbling. The KBW Regional Banking Index dropped 6.3% in a single day.
JPMorgan CEO Jamie Dimon put it bluntly during his earnings call: “When you see one cockroach, there’s probably more”. His warning about potential problems lurking in the private credit market serves as a reminder that not everyone is benefiting from this “new normal.”
The Magnificent 7’s Evolving Story
No discussion of earnings season would be complete without addressing the so-called “Magnificent 7” tech giants—Apple, Microsoft, Alphabet, Meta, Amazon, Tesla, and Nvidia. These companies are expected to report aggregate earnings growth of 14.9% for Q3, though this represents a notable moderation from the 26.6% they delivered in Q2.
This deceleration is worth unpacking. In Q2, all seven companies beat earnings estimates, often by substantial margins, driving expectations sky-high for the remainder of the year. Now, as Q3 results roll in, we’re seeing a more mixed picture. Netflix, often considered a bellwether for consumer discretionary tech spending, missed earnings expectations significantly—reporting EPS of $5.87 versus forecasts of $6.96, primarily due to a Brazilian tax dispute that cost the company over $600 million.
Yet even with this miss, Netflix’s stock barely flinched, rising 0.23% in after-hours trading. Why? Because investors are looking past short-term hiccups to focus on structural growth drivers: the company expects to more than double its advertising revenue by year-end, and its content slate for Q4 includes heavy hitters like the final season of Stranger Things.
This reaction encapsulates something important about Q3 2025: earnings quality matters more than absolute numbers. The market is rewarding companies with clear growth trajectories and penalizing those whose problems seem structural rather than temporary.
The Forecast That Broke the Mold
Perhaps the most remarkable aspect of this earnings season is the corporate guidance for Q4 2025. Historically, about 60% of companies issue “negative guidance”—essentially telling analysts their estimates are too high—while only 40% provide positive guidance. It’s a pattern so consistent that it’s become background noise.
But for Q4 2025, the ratio is starting to shift. Only 2 S&P 500 companies have issued negative EPS guidance so far, while 8 have issued positive guidance. Now, it’s still early—guidance season is just beginning—but this early trend is noteworthy, especially coming from a quarter where estimates actually rose rather than fell.
Why are companies feeling more confident? The answer lies in a combination of factors that are creating what analysts describe as “unusual corporate resilience.” Despite ongoing trade tensions (with President Trump threatening an additional 100% tariff on Chinese goods starting November 1), a three-week government shutdown that has suspended critical economic data, and inflation that remains stubbornly above the Fed’s 2% target at 2.9%, corporate America is finding ways to perform.
Part of this resilience stems from margin expansion. The S&P 500’s blended net profit margin for Q3 is expected to reach 12.8%, above the year-ago margin of 12.5% and well above the five-year average of 12.1%. Five sectors are reporting year-over-year increases in their net profit margins, led by Financials (19.7% vs. 18.0%), Information Technology (26.6% vs. 25.1%), and Utilities (16.3% vs. 14.8%).
These expanding margins tell a story of companies successfully managing cost pressures while maintaining pricing power—a delicate balance that seemed almost impossible earlier in the year when tariff fears dominated headlines.
The Data Vacuum Dilemma
One of the strangest subplots of Q3 2025 earnings season is happening in the background: the Federal Reserve is making monetary policy decisions while flying blind. The ongoing government shutdown has blocked crucial economic reports, including employment statistics and inflation data. This creates an unusual dynamic where corporate earnings reports become even more important as real-time indicators of economic health.
In a normal quarter, analysts adjust their forecasts based on a steady stream of government data about consumer spending, job creation, and inflation. This quarter, they’ve had to rely more heavily on what companies themselves are saying about business conditions. The fact that this reliance has led to upward revisions rather than downward ones suggests that corporate leaders are seeing something positive that may not yet be reflected in the limited public data available.
The Federal Reserve faces its October 28-29 policy meeting with markets fully pricing in another quarter-point rate cut. But Fed Chair Jerome Powell is in an uncomfortable position: he needs to balance a weakening labor market against inflation that continues running hot, all while lacking the usual data to guide his decisions.
The Elephant in the Trading Room
Of course, there’s a catch to all this optimism. The S&P 500’s forward 12-month price-to-earnings ratio sits at 22.4, well above the five-year average of 19.9 and the 10-year average of 18.6. Some measures put the forward P/E even higher, around 23.1, depending on the methodology used.
This elevated valuation means the market has already priced in a lot of good news. Any disappointment—whether from geopolitical shocks, a sharper-than-expected economic slowdown, or simply companies failing to meet these newly raised estimates—could trigger a correction. As one analyst put it, the market is “walking a tightrope between an AI boom and an economic slowdown”.
The valuation question becomes even more pressing when you look at what’s driving the earnings growth. Excluding the Magnificent 7, the remaining 493 companies in the S&P 500 are expected to post earnings growth of just 6.7% for Q3. This concentration of growth in a handful of mega-cap tech companies means the market’s health is heavily dependent on those few names continuing to deliver—a reality that makes many investors nervous.
What This Means for Investors
So what should investors make of this unusual earnings season? A few key takeaways emerge:
First, corporate America is more resilient than many expected. Companies have found ways to navigate trade tensions, cost pressures, and economic uncertainty while still growing earnings. The fact that analysts raised estimates during the quarter—breaking a pattern that held for years—suggests this resilience has genuine underlying strength.
Second, not all sectors are created equal. The divergence between Wall Street’s major banks (thriving) and regional banks (struggling with loan quality issues) is stark. Similarly, while the Magnificent 7 continue to grow, their growth rates are moderating. Investors need to be selective rather than assuming all boats will rise with the tide.
Third, guidance matters more than usual. In an environment where economic data is scarce and uncertainty is high, what companies say about their outlook carries extra weight. The shift toward more positive guidance for Q4 is encouraging, but it also sets a higher bar for future performance.
Fourth, valuation discipline is essential. With the market trading at above-average multiples, there’s limited room for error. The strong Q3 results justify current prices only if companies can maintain this momentum. Any signs of weakness could lead to swift repricing.
Finally, the “new normal” might not last. Historical patterns exist for a reason. The typical analyst behavior of lowering estimates during quarters reflects the reality that unforeseen problems usually outweigh unexpected good news. Q3 2025’s reversal of this pattern is remarkable, but investors should be cautious about assuming it represents a permanent shift rather than a temporary anomaly.
As we move deeper into earnings season, with 88 S&P 500 companies scheduled to report in the coming weeks (including tech heavyweights like Microsoft, Apple, Amazon, and Alphabet), we’ll get a clearer picture of whether Q3 2025 truly represents a new paradigm or merely a pleasant surprise.
The peak weeks for Q3 reporting run from October 27 through November 14, and these weeks will be crucial in determining whether the positive momentum continues or whether cracks begin to appear. Investors will be watching not just the headline numbers but the details: Are companies maintaining pricing power? Are margins holding up? Is consumer spending staying resilient? Are supply chains stabilizing?
One thing is certain: Q3 2025 has already earned its place in the history books as the earnings season that defied expectations. Whether it marks the beginning of a new era of corporate strength or proves to be an outlier in a more challenging longer-term environment remains to be seen. But for now, as one analyst noted, “the proportion of companies beating earnings expectations this quarter is the highest in more than four years”.
In a world that often feels increasingly unpredictable, corporate America’s ability to deliver results that surprise even professional skeptics to the upside is a development worth celebrating—even if cautiously. The new normal, it turns out, includes some old-fashioned earnings growth, delivered in decidedly un-normal circumstances.
