The Rally Everyone Loves Until It Blinks
Just when you thought the markets couldn’t climb any higher, they do. Major US indexes are printing fresh The Federal Reserve has finally pulled the trigger. Its first rate cut in nine months is now official, and investors are already moving on. After months of second-guessing every Powell utterance, it seems the market’s favorite central banker just handed Wall Street a permission slip to stop obsessing over rates and start paying attention to what really matters: corporate earnings, economic momentum, and the outlook ahead.
This week, we’re seeing an encouraging narrative take shape. Analysts are lifting S&P 500 earnings estimates, a rare trend during the quarter, economic projections are defying labor softness, and optimism about a so-called “soft landing” is no longer whispered theory but a forecasted baseline. But before you get too comfortable, remember: lofty valuations still demand results.
Let’s cut through the noise and focus on what drives value. Because now, more than ever, attention pays.
This Week I Learned…
When Analysts Buck the Trend, You Should Pay Attention
This week I learned that when Wall Street analysts raise earnings forecasts during a quarter rather than trim them as usual, it’s a strong signal investors shouldn’t ignore.
Here’s why it matters. Typically, earnings estimates start high and gradually fall as the quarter progresses and more information becomes available. That’s just how analyst conservatism works. But this time, estimates for Q3 S&P 500 earnings have been inching upward as the quarter progressed. According to FactSet, Q3 earnings expectations recently climbed to $67.77 per share, up from $67.32 in June, a 0.7% increase.
That’s not just statistical trivia. It’s a window into analyst sentiment and corporate communication. As Mercer’s Jay Love notes, it likely means executives are offering upbeat outlooks behind closed doors and analysts are reacting in real time.
The kicker: this shift is occurring while the labor market is showing signs of softening. That divergence is unusual and could reflect underlying strength in consumer spending, tech profitability, or both. For investors, the current rally may have more legs than the skeptics believe.
The Fun Corner
The Laugh You Can Expense as Research
Why did the investor stop worrying and love the earnings season?
Because the Fed gave him a rate cut and told him to focus on earnings instead, and he took it literally.
Here’s a fun fact: according to decades of FactSet data, earnings expectations almost always decline during a quarter. But in just 12 percent of quarters over the last 15 years have they increased. And, as you might expect, those rare quarters tend to coincide with stronger-than-expected market gains.
Call it the earnings optimism anomaly. Or maybe it’s just the market behaving like that one kid in class who studies harder after getting an A.
Rate cuts may get headlines, but it’s earnings revisions that often steal the show.
The Higher It Goes…
Now that the Fed has finally cut rates, with more “risk-management” cuts likely in the pipeline, the spotlight is swinging back to fundamentals. And in 2025, that means one thing: earnings.
The Fed’s September projections painted a surprisingly upbeat picture. Growth is intact, recession isn’t on the radar, and Powell sounds increasingly confident in a soft landing. But this confidence comes with a message. Investors need to start evaluating what really drives equity prices from here on out.
Right now, corporate earnings are showing momentum. S&P 500 profit expectations for Q3 have increased during the quarter, a rare and telling trend. If earnings meet expectations, we’re looking at the ninth consecutive quarter of growth, with tech companies leading the charge once again. The “Magnificent Seven” are still pulling most of the weight.
This raises two key implications for investors. First, it validates the current market rally, which has largely been driven by anticipation of rate cuts and AI-fueled tech strength. Second, it forces a closer look at valuation. High multiples are only sustainable if earnings deliver, and so far, they have.
Beyond earnings, the Atlanta Fed’s GDPNow tracker shows Q3 growth at 3.3 percent, up sharply from earlier forecasts. And despite a slowdown in hiring, consumer spending and manufacturing data are holding firm. For now, the market is walking the tightrope between high expectations and supportive fundamentals.
What comes next? The next earnings season will test whether this confidence holds. Watch for commentary on AI, tariffs, and inflation risks. All of these could shift sentiment fast.
But for today, one thing is clear. Rate policy has taken a back seat. From here forward, it’s about earnings and execution.
The Last Say
Focus: Earnings Ahead
With the Fed stepping back and earnings stepping forward, the market has found its next obsession and it’s not macro policy.
This week gave us more than just a rate cut. It delivered a shift in investor psychology. We’ve spent most of 2025 debating “will they or won’t they” when it comes to monetary easing. Now that we’ve got an answer, the real question becomes: can companies live up to the valuation premium the market has granted them?
Early signs are promising. Analysts are unusually upbeat, economic projections are holding firm, and big tech still has momentum. But this rally is no longer floating on Fed optimism alone. It now depends on execution, earnings execution that is.
As we close this week’s issue, here’s the takeaway. In a world of data, narratives, and shifting priorities, it’s the numbers that carry weight. Watch the profit margins. Track the forward guidance. Pay attention to revision trends.
Because the market has made its move. Now it’s time for the companies to justify the price tags investors are willing to pay.
