U.S. equities have strengthened in recent weeks, powered by renewed earnings momentum and expanding valuations — particularly in Technology and other growth-oriented sectors, according to Barclays.
The bank said third-quarter results broadly outperformed expectations, with 81% of S&P 500 companies beating estimates, well above the long-term average of 76%. Year-over-year, earnings rose 11.6% while sales climbed 6%, supported by a rebound in operating leverage, which turned positive for the first time this year.
Barclays strategist Venu Krishna noted that market performance was “driven by strength in Healthcare, Consumer Staples, and Financials,” while strong showings from Consumer Discretionary companies such as Amazon (NASDAQ:AMZN) and Communication Services names helped lift overall results.
Big Tech once again led the rally, recording nearly 30% year-over-year EPS growth—its fastest pace in two years. The sector’s average earnings surprise of 11.1% also exceeded its long-term average of 7.2%, with Alphabet (NASDAQ:GOOG) and Amazon among the standout performers.
Even excluding technology, S&P 500 earnings growth improved quarter-over-quarter, supported by margin expansion and stronger operating efficiency. Healthcare achieved the highest beat-to-miss ratio, while Financials continued to post steady annual growth.
Despite these strong fundamentals, Krishna warned that “share prices are facing greater downside risk on misses than upside reward on beats.” He explained that “while last quarter saw beats rewarded more than the long-term historical average, this quarter the positive reaction to beats has moderated, reverting to a trend observed in prior periods where misses are punished more than beats are rewarded.”
Consensus earnings forecasts for 2025 have moved slightly higher during the reporting season, with S&P 500 EPS now expected to reach $272. Krishna said this reflects “limited flow-through of intra-quarter results to forward guidance,” meaning that valuation expansion—not improved forecasts—has been the primary driver of recent market gains.
“While Tech has been consistent on earnings beats over recent quarters, multiple expansion raises the bar to continue delivering,” he added, suggesting that sustaining momentum may become more challenging as valuations rise.