US companies’ earnings are growing at the fastest pace in four years, defying predictions that President Donald Trump’s trade war would trigger a slowdown across corporate America.
Median earnings growth year-on-year across the Russell 3000 index — a benchmark for the entire US stock market — hit 11 per cent in the third quarter, up from 6 per cent in the previous three months, according to Morgan Stanley. That is the fastest growth rate since the third quarter of 2021.
Six of the 11 sectors that make up the blue-chip S&P 500 index have reported positive average earnings growth in the three months to September, according to Deutsche Bank analysts, up from just two — financials and megacap technology stocks — between April and June.
The buoyant growth comes despite warnings earlier this year from executives that Trump’s sweeping tariffs would push up costs, hit supply chains and pose a threat to economic growth.
“Companies have found ways to absorb the tariff impact and consumers will keep spending so long as they have a job,” said Dec Mullarkey, managing director at SLC Management, which runs $300bn in assets.
Goldman Sachs equity strategist David Kostin said the vast majority of S&P 500 companies have reported their third quarter figures and results so far are above analysts’ consensus forecasts and one of the highest rates on record.
“In our 25-year data history, this frequency of earnings surprises has been surpassed only during the Covid reopening period in 2020-2021,” he wrote in a note to clients this week.
Analysts expect earnings to grow by 7.5 per cent in the fourth quarter, according to data provider FactSet.
Corporate sentiment has been helped by trade deals with Japan and the EU, while last month Trump and Chinese leader Xi Jinping agreed a one-year trade truce.
Carmakers Ford and General Motors have said they expect a smaller tariff hit as a result of the Trump administration’s extended relief measures for imported car parts.
Power companies, real estate groups and industrials are also recording strong sales growth and expanding margins. NRG Energy benefited from data centre construction and improving travel demand boosted Southwest Airlines.
Banks including Goldman Sachs, Citigroup and JPMorgan Chase have posted bumper profits, helped by a resurgence of dealmaking activity and strong trading income thanks to financial market volatility.
Despite Meta disappointing the market with hefty capital expenditure plans, Big Tech groups such as Alphabet, helped by Google’s search and advertising business, and Microsoft posted results that topped analysts’ estimates.
However, warnings from some consumer-facing companies suggest many Americans may be struggling, say analysts.
The chief executive of packaged foods group Kraft Heinz flagged consumer sentiment going into the Christmas period as “one of the worst” in decades, while hamburger chain McDonald’s said customers had been pulling back from its more expensive offerings.
Companies selling goods rather than services “have been the clear laggards” this earnings season, said Deutsche analysts, with “consumer-facing companies” faring worse than those selling predominantly to other businesses.
The absence of official jobs data caused by the US government shutdown has added to investors’ uncertainty about the state of the labour market and the health of the consumer.
Alternative sources of data including the National Federation of Independent Business, the San Francisco Federal Reserve and state-level jobless claims show the jobs market “is still doing well”, said Torsten Sløk, chief economist at investment firm Apollo Global Management.
That is despite significant lay-offs by big companies recently, with at least 17 S&P 500 groups, including Amazon, UPS and Target, shedding roughly 80,000 jobs since the start of September, according to Goldman Sachs.
The University of Michigan’s index of consumer sentiment fell to a three-year low in November. Falling confidence “was widespread throughout the population, seen across age, income and political affiliation”, said Joanne Hsu, the survey’s director.
There was “one key exception”, Hsu added — sentiment among consumers with large stock holdings rose 11 per cent.
Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said a “widening chasm” between the haves and have-nots explained why consumer demand appeared resilient despite the weakening labour market.
The top 40 per cent of households by income “control nearly 85 per cent of America’s wealth, two-thirds of which is directly tied to the stock market, which has climbed more than 90 per cent in three years”, she said.
As a result, “forecasting the labour market may increasingly be less important than forecasting the direction of the stock market itself in order to understand consumption levels”.