Third-quarter earnings season for the S&P 500 is still delivering strong growth, but the pace has cooled as more Big Tech companies report. According to Oppenheimer Asset Management, earnings growth now stands at 38%—down from roughly 47% just a week earlier—as the sample of companies reporting expands.
Revenue growth has also eased, slipping to 12% from nearly 14%. The slowdown isn't a sign of weakness; it's mostly a mix issue. Early in the season, a handful of blowout results from tech giants skewed the numbers higher. As more companies report, those outsized gains are being averaged into a larger, more representative pool.
Tech still leads, but the gap narrows
Technology profits remain the fastest-growing segment of the market, but the magnitude has shifted. Oppenheimer notes that tech earnings are now roughly triple their level from a year ago, compared with about four times that level earlier in the reporting cycle. That's still an extraordinary pace, but it's less eye-popping than the initial readings suggested.
This is a common pattern during earnings season. The first wave of reporters often includes the biggest names, and their results can dominate the aggregate numbers. As the season progresses, the inclusion of smaller and slower-growing companies tends to pull the overall growth rate toward the median.
Investors have been closely watching Big Tech's AI spending and whether it's translating into profits. So far, the sector is delivering, but the market's reaction has been mixed—some companies have seen their stocks dip even after strong results, as investors weigh the costs of massive capital expenditures.
Breadth is the real story
The more encouraging detail, according to Oppenheimer, is breadth. All 11 sectors of the S&P 500 have reported positive earnings growth so far. That's a marked improvement from recent quarters, where gains were often concentrated in a handful of mega-cap tech names.
Broad-based growth is generally seen as a healthier sign for the market. It suggests that the economic expansion is reaching beyond the tech sector, into industrials, financials, healthcare, and consumer companies. For everyday investors, this means the market's fate isn't solely tied to the fortunes of a few giants.
That said, tech still carries outsized weight in the index. The sector's performance can move the entire market, as seen in recent weeks when Treasury yields eased ahead of Big Tech earnings and the Federal Reserve's rate decision.
What it means for investors
For ordinary investors, the key takeaway is that corporate America is still growing at a healthy clip. A 38% earnings growth rate is well above the long-term average, which typically hovers in the high single digits. Even if the pace slows further as more companies report, the quarter is shaping up to be one of the strongest in years.
The cooling from 47% to 38% shouldn't be read as a warning sign. It's a natural normalization as the sample size grows. What matters more is whether the growth is sustainable and whether it's broad enough to support current stock valuations.
Investors are also watching the Federal Reserve, which is set to make its next rate decision soon. Lower rates tend to support stock valuations, while higher rates can pressure them. The combination of strong earnings and a potential rate cut could be a tailwind for the market, but uncertainty remains.
As the season continues, watch for updates from more companies, especially those outside tech. If the breadth holds, it could signal that the market's rally is on firmer footing. If not, the concentration risk that has worried analysts may resurface.
For now, the message from the data is clear: earnings are still growing, just less spectacularly than the early numbers suggested. That's not a bad place to be.
