US Stocks Reach Records as Earnings Upgrades Surge

The S&P 500 Index is setting new records due to a rapid increase in earnings upgrades by analysts. A Citigroup index tracking the relative number of US earnings-per-share estimate upgrades versus downgrades is at its highest since December 2021. Companies that recently issued outlooks have also shown strong upward momentum. However, the full-year outlook still lags pre-trade war projections, and analysts caution that future guidance could be lowered due to ongoing trade tensions.

The S&P 500 Index continues to set new records as analysts upgrade their earnings estimates at an unprecedented rate. According to a Citigroup index tracking the relative number of US earnings-per-share estimate upgrades versus downgrades, this index is at its highest level since December 2021. Companies that have recently issued outlooks have shown strong upward momentum, contributing to the overall optimism.

Aggregate S&P 500 earnings per share have increased by 11% over the previous year, far exceeding the 4% consensus expectation. This surge is attributed to companies' ability to mitigate the impact of tariffs and benefit from a weaker dollar [1]. Goldman Sachs strategists report that 60% of S&P 500 companies have beaten earnings per share forecasts by more than a standard deviation of estimates, marking one of the greatest frequencies of earnings beats on record [1].

The profit margins of US firms have held up better than expected despite tariffs. Companies have managed this by negotiating with suppliers, adjusting supply chains, and passing price hikes to consumers. The weaker dollar has also contributed to an acceleration in S&P 500 sales growth during the second quarter [1]. However, sales growth appears more at risk for smaller companies, which enjoy less of a tailwind from dollar weakness [1].

Despite the optimism surrounding the current earnings season, analysts caution that the full-year outlook still lags pre-trade war projections. Ongoing trade tensions could potentially lower future guidance, affecting investor sentiment. Brazil, for instance, has submitted its response to a US trade investigation, challenging the probe's legitimacy and expressing willingness to engage in negotiations [2].

Outlook Therapeutics (OTLK), a biotech company, reported a $81M net loss in Q3 2025, driven by $29M R&D and $19.5M SG&A expenses. While the company continues to face significant losses, historical backtests indicate that long-term investors may benefit from a 60+ day holding strategy, with 30-day post-earnings returns outperforming the underperforming biotech sector average [3]. The company's continued losses highlight the risks of capital overleveraging and the need for close monitoring of cash flow and pipeline progress.

In conclusion, the S&P 500 earnings season has been marked by significant upgrades and strong performance, driven by companies' ability to navigate tariffs and benefit from a weaker dollar. However, ongoing trade tensions and potential downgrades in future guidance pose risks to investor sentiment. Long-term investors, particularly in the biotech sector, should focus on fundamentals and future catalysts to navigate these uncertainties.

References:
[1] https://www.bloomberg.com/news/articles/2025-08-18/goldman-s-kostin-says-s-p-500-earnings-surge-past-expectations
[2] https://finance.yahoo.com/news/live/trump-tariffs-live-updates-us-keeps-aa-rating-as-tariffs-aid-fiscal-outlook-200619517.html
[3] https://www.ainvest.com/news/outlook-therapeutics-posts-loss-q3-2025-earnings-market-impact-remains-mixed-2508/