Q4 Earnings Preview: Growth Is Real, But It’s Narrow—and Markets Know It

The fourth-quarter earnings season is set to begin against a backdrop of high expectations, elevated valuations, and a market that is increasingly focused on micro fundamentals rather than macro narratives. After a year in which earnings consistently surprised to the upside, investors are approaching Q4 with a familiar but uncomfortable question: are estimates still too low, or has optimism finally gone far enough?

At the broad index level, consensus expects S&P 500 earnings to grow roughly 7% year over year in Q4 2025, with revenues up around 6–8%. On the surface, those figures suggest a moderation from the double-digit earnings growth posted in each of the first three quarters of 2025. But history argues that these numbers are likely conservative once again. Over the past year, companies exceeded consensus EPS growth estimates by an average of roughly six percentage points per quarter, and early indicators suggest that pattern may persist. Citi, for example, expects a “normal” beat of about 4%, which would push full-year S&P 500 earnings toward $275 and reinforce the idea that bottom-up estimates continue to lag underlying fundamentals.

Revenue growth will be one of the most closely watched components this season. Consensus sales growth of roughly 5.7% for Q4 appears light relative to macro conditions. Nominal GDP growth in the quarter is estimated at just over 5%, and the roughly 7% year-over-year decline in the trade-weighted U.S. dollar likely provided an additional two-point tailwind to reported revenues. With economic growth relatively stable and financial conditions supportive, investors will be quick to question any company narratives that point to unexpected demand weakness.

Margins, however, are where expectations become more restrained. S&P 500 profit margins sit near record highs around 12.2% and are expected to expand only modestly in Q4, roughly 20 basis points year over year. Operating leverage and the rising weight of high-margin technology companies are helping at the index level, but tariffs and input costs remain a meaningful headwind for many sectors. Customs duties rose sharply during the quarter compared to both the prior quarter and last year, and analysts are already bracing for downward revisions to 2026 margin assumptions, which currently look optimistic.

This earnings season will again underscore the growing divide between mega-cap technology and the rest of the market. Consensus expects the so-called Magnificent 7 to deliver roughly 20% EPS growth in Q4, compared with just 3% growth for the other 493 companies in the S&P 500. Technology overall is projected to grow earnings by more than 20%, while excluding Information Technology, index-level EPS growth drops close to flat. In many ways, this is the defining feature of the current earnings cycle: strong aggregate growth driven by a narrow group of companies with secular tailwinds, masking much weaker trends beneath the surface.

Early results support that narrative. Of the roughly 20 companies that have reported so far, about 84% have beaten EPS expectations, well above last year’s pace, with an average beat of roughly 13%. Year-over-year earnings growth among early reporters has been solid but slower than last year, reflecting tougher comps rather than deteriorating fundamentals. Importantly, median earnings growth has improved, suggesting that while growth is narrower at the index level, the “typical” company is still delivering respectable results.

Guidance trends have also been more constructive than usual heading into the season. More companies than average have issued positive EPS guidance for Q4, and the percentage doing so sits well above both five- and ten-year averages. Information Technology stands out again, accounting for the largest share of upward revisions and positive guidance. As a result, estimated S&P 500 earnings growth for Q4 has risen from roughly 7.2% at the end of September to more than 8% today—an unusual pattern given that estimates typically fall as the quarter progresses.

Investors will be watching several themes closely as results roll in. First, the evolution of AI spending and adoption remains central. While hyperscaler capex growth is expected to slow sequentially, absolute spending levels remain enormous, and any evidence that enterprise AI adoption is translating into measurable productivity gains will be closely scrutinized. Second, capital allocation decisions are back in focus. Buyback activity has slowed as capex surged, particularly among large tech companies, and markets continue to reward firms that can sustain both investment and shareholder returns. Third, commentary on pricing power, cost control, and tariffs will shape expectations for margin sustainability in 2026.

Timing also matters. By the first week of February, roughly 68% of S&P 500 market capitalization will have reported results, giving investors a clear read on the season early. Financials kick things off next week, setting the tone for credit quality, capital markets activity, and net interest income trends. Nvidia, the largest stock in the index and a linchpin of the AI narrative, will report late February, ensuring that the season’s most consequential report still lies ahead.

Finally, recent market performance raises the stakes. The S&P 500 is coming off a strong run, valuations are elevated with a forward P/E north of 22, and earnings growth expectations for 2026 remain ambitious. With analysts projecting double-digit growth next year, this season is less about whether companies beat Q4 numbers and more about whether they can credibly defend the path ahead.

In short, the upcoming Q4 earnings season is shaping up as another solid but selective one. Growth is there, beats are likely, and revisions remain supportive—but the market’s tolerance for disappointment is low. For investors, the key will be distinguishing between companies riding genuine secular momentum and those merely benefiting from a forgiving macro backdrop that may not last.