Handicapping the Q3 Earnings Season

S&P 500 Q3 earnings are projected to increase by +5.1% year-over-year on +6% higher revenues, marking the slowest growth rate since Q3 2023, despite a positive estimate revision trend since late April. This aggregate growth is heavily driven by the Tech sector, expected to see an +11.8% earnings increase, which, alongside the Finance sector, accounts for over 50% of the index's total earnings and offsets estimate pressures across 11 other sectors. Upcoming reports include Accenture, facing a -32.2% YTD stock decline due to flat IT spending and AI disintermediation, and Costco, which has underperformed with +4.4% YTD gains amidst competitive pressures from Amazon, despite both projecting positive quarterly earnings growth.

Analysis

The S&P 500 is heading into the Q3 earnings season with an expected earnings growth of +5.1% year-over-year on +6% higher revenues, a notable deceleration from the double-digit growth rates observed in the first half of 2025. If realized, this would represent the slowest earnings growth pace for the index since Q3 2023. This aggregate figure, however, masks a significant market divergence. The Technology sector is the primary growth engine, projected to deliver an +11.8% earnings increase; without its contribution, the broader index's growth would fall to just +2%. This highlights a critical dependency, as positive estimate revisions in the Tech and Finance sectors are offsetting negative revisions across 11 other sectors, including Medical and Consumer Staples. Upcoming reports from Accenture (ACN) and Costco (COST) provide micro-level examples of current market pressures. Accenture faces deep investor skepticism, reflected in its -32.2% year-to-date stock decline, driven by concerns over flat IT spending and the threat of AI disintermediation, despite expectations of +6.8% earnings growth. Costco, while expected to post a strong +12.8% earnings increase, has seen its stock underperform Walmart and the S&P 500, with analysts citing intensified competition from Amazon's grocery delivery initiatives and a moderately negative revision trend for its next fiscal year.

Key Decisions for Investors

• Given the heavy reliance on the Technology sector to support overall S&P 500 earnings, investors should scrutinize results from this group and maintain a sector-focused strategy, as weakness here could significantly impact the index's headline growth.
• For Accenture (ACN), investors must weigh the expected quarterly growth against the severe structural headwinds of AI disintermediation and flat IT spending that have driven the stock's -32.2% YTD underperformance and a strongly negative sentiment score.
• Investors in Costco (COST) should look for management's commentary on competitive pressures from Amazon, as this factor appears to be the primary driver of its recent stock underperformance and negative estimate revisions, despite projections for robust +12.8% quarterly earnings growth.
• Considering the market's bifurcation, portfolios should be reviewed for overexposure to the 11 sectors experiencing negative earnings revisions, such as Transportation and Basic Materials, which are being masked by strength in Tech and Finance.