S&P Earnings Beat, Sentiment Falls
The Q4 2025 earnings season closed better than feared, with 73% of S&P 500 companies beating EPS estimates. Despite this, market sentiment is souring due to inflation and rate uncertainty, with analysts noting a rotation toward non-U.S. equities which are showing stronger relative growth.
While the 73% earnings beat rate for Q4 2025 appears strong, it falls short of the five-year average of 78% and the ten-year average of 76%. In aggregate, company earnings surpassed estimates by 6.8%, a figure also below recent historical averages, suggesting the magnitude of positive surprises is narrowing. This marked the fifth consecutive quarter of double-digit year-over-year earnings growth for the S&P 500, which posted a blended growth rate of 14.2%. Looking ahead, guidance for Q1 2026 is mixed, with 52 companies issuing positive EPS guidance against 45 issuing negative guidance. Analysts have begun to trim Q1 forecasts, particularly for the Health Care and Energy sectors. The Federal Reserve is holding its key interest rate steady in the 3.5% to 3.75% range, with projections from its own members indicating the likelihood of only one quarter-point cut through the remainder of 2026. Policymakers have raised their forecast for 2026 GDP growth to 2.3% but do
