A Look Ahead To Q4 25 US Earnings Season

Earnings season will soon be back underway on Wall Street, as corporates report fourth quarter figures, starting with the major banks at the beginning of next week. Participants will pay close attention to the upcoming reports, not only as a gauge of individual stock performance, but also as a barometer of broader conditions within the US economy.

Lofty Expectations

Expectations ahead of reporting season are relatively lofty. Per expectations compiled by FactSet, the S&P 500, overall, is set to notch annual earnings growth of 8.3% YoY, a figure which would mark the 10th consecutive quarter of growth for the benchmark.

From a revenue perspective, meanwhile, the index is set to chalk up growth of 7.6% YoY, which would not only mark the 21st consecutive quarter of growth, but also the second fastest pace since the third quarter of 2022.

Valuations Remain Elevated

As for valuations, the S&P remains ‘overvalued’ by traditional metrics, though this has now been the case for some considerable time and, in isolation, is in no way a reason to adopt a bearish view of proceedings. In any case, the index’s 12-month forward P/E ratio currently sits at 21.8, above both the 5- and 10-year averages, though below the 22.8 seen at the end of Q3 25.

Strong Performance Likely To Be Broad-Based

Diving deeper, to a sectoral level, expectations point to 9 of the S&P’s 11 sectors chalking up annual earnings growth, with the information technology and materials sectors set to lead the way. On the other hand, the consumer discretionary sector is set to record the largest YoY earnings decline, likely a reflection of consumers marginally pulling back on spending as the impact of higher prices continues to be felt.

From a revenue perspective, growth is also likely to be broad-based, with ten of the eleven sectors seen reporting an annual increase, again led by the information technology sector. Only the energy space is set to report a YoY decline in revenues, largely resulting from the >20% decline in crude prices seen over the last twelve months.

Banks To Kick-Off Reporting Season

As is usually the way, the major Wall St banks kick-off earnings season, beginning with JPMorgan (JPM) before the open on Tuesday 13th January. Bank earnings will be examined closely, not only as a barometer of broader economic performance, but also in terms of ‘setting the stage’ for how the remainder of reporting season may progress. Credit provisions are likely to be watched particularly closely.

That said, all signs point towards another strong set of earnings from the banks, with M&A activity having remained healthy, the broader economy having been robust, and the regulatory environment remaining favourable. In light of all this, it is perhaps no surprise to see the KBW banks index (BKX) roll into earnings season at a record high.

‘Magnificent Seven’ Also In Focus

Unsurprisingly, along with the banks, earnings from the ‘magnificent seven’ will also be closely watched, not least considering the mammoth weights that these names possess in benchmark indices. While all of the ‘mag 7’ names ended last year in the green, performance across the space diverged significantly – Alphabet (GOOG/L) charged higher with a 65% gain in 2025, while Amazon (AMZN) lagged the pack, and the S&P 500, eking out a modest return of just over 5%.

Not only will participants be seeking the classic ‘beat and raise’ from these names, but there will also be heavy scrutiny on capital expenditure plans, as investment into AI continues at a breakneck pace, with participants also increasingly questioning the timescales over which a return on that investment is likely to be obtained.

AI Remains The Key Theme

It will not only be those ‘mag 7’ names where the AI theme is scrutinised closely, but the market at large, be it the hyperscalers, semiconductor names, or even second-derivative AI-related plays such as those associated with power, cooling, and other areas of data centre construction.

Participants, on the whole, will be wanting the typical three bullish factors to unlock post-report gains – a beat on top- and bottom-line figures; a guidance raise; and, bullish commentary during the earnings call. However, given increased jitters over how the rollout is being financed, especially with a notable increase in debt issuance, there is the increased potential for diverging performances between those companies where capex stems from free cash flow, and those where capex is debt-funded.

Overall Impact

On the whole, earnings season stands as the first significant test for the US equity market this year. While 2025’s bull case, largely, has rolled forward into 2026, one of the key pillars of this bull case is that earnings growth remains robust. Were that assumption to be questioned, or thrown into doubt, trading conditions could become considerably more choppy, particularly considering that the market comes into reporting season, essentially, ‘priced for perfection’, giving minimal room for any negative surprises.

Despite that, providing that earnings print as solid as expected, or even better than consensus foresees, the ‘path of least resistance’ should continue to lead higher for the market at large over the medium-term, supported by the economy remaining robust, the looser monetary and fiscal backdrops, as well as a calmer trade tone continuing to be adopted, leaving dips as buying opportunities for the time being.