EARNINGS WATCH
369 companies in the S&P 500 Index have reported earnings for Q4 2025. Of these companies, 74.5% reported earnings above analyst expectations and 20.3% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 78% of companies beat the estimates and 16% missed estimates.
In aggregate, companies are reporting earnings that are 5.1% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.4% and the average surprise factor over the prior four quarters of 7.6%.
Of these companies, 72.6% reported revenue above analyst expectations and 27.4% reported revenue below analyst expectations. In a typical quarter (since 2002), 63% of companies beat estimates and 37% miss estimates. Over the past four quarters, 71% of companies beat the estimates and 29% missed estimates.
In aggregate, companies are reporting revenues that are 1.7% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.7%.
The estimated earnings growth rate for the S&P 500 for 25Q4 is 13.6%. If the energy sector is excluded, the growth rate improves to 14%.
The estimated revenue growth rate for the S&P 500 for 25Q4 is 8.6%. If the energy sector is excluded, the growth rate improves to 9.3%.
The estimated earnings growth rate for the S&P 500 for 26Q1 is 12.2%. If the energy sector is excluded, the growth rate improves to 13.3%. (LSEG IBES)
Trailing EPS are now $275.24. Full year 2026e: $314.35. Forward EPS: $313.73e. Full year 2027e: $364.00.
Since January 2, trailing EPS are up 2.9% and forward EPS 4.6%.
Guidance for Q1 is similar to Q4:
But analysts keep raising…
…although only 3 sectors have actually seen their 2026 growth rate upped so far this year. The other 8 sectors’ average earnings growth rate has actually been reduced from 9.9% to 7.3%.
Only 3 sectors outperformed the S&P 500 earnings growth rate in Q4’25. Also 3 expected in Q1’26, 2 in Q2, 3 in Q3 and 5 in distant Q4. The so-called broadening market does not come from broadening earnings growth, does it?
Supported by this Apollo Management chart:
And by this other one showing that the Mag-7 companies are the only ones with rising margins:
Ed Yardeni shows that the Mag-7 P/E is down to 25.8 with the remaining stocks at 19.9. The Mag-7 EPS are forecast to grow 23% in 2026 and 22% over the next 3-5 years. That’s a PEG ratio of 1.17.
The S&P 500 PEG ratio is also 1.18.
Want it or not, this is still an AI-centric equity market.
Roaring tech capital spending (Ed Yardeni)
High-tech capital spending in nominal GDP rose $230 billion y/y to a record $2.3 trillion (saar) during Q3-2025. This year, high-tech capital spending on AI infrastructure, including power generation and transmission, is projected to total $700 billion.
Last week, investors were freaked out by how much the hyperscalers planned to spend on AI infrastructure until they seemed to realize on Friday that this would be very stimulative to overall business activity as well as the cash flow of the hyperscalers. They realized that after Nvidia CEO Jensen Huang made these observations in an interview with Scott Wapner on CNBC’s “Closing Bell.” (…)
Huang dismissed these concerns about overspending, stating that the capital investments are “appropriate and sustainable” because they lead to “profitable tokens” and rising cash flows.
Overall corporate cash flow rose to a record-high $3.9 trillion (saar) during Q3-2025. It will get a big boost from OBBBA this year. Under prior law, bonus depreciation had dropped to 60% in 2024 and was heading toward 40% in 2025. OBBBA permanently restores 100% bonus depreciation for qualifying property (equipment, machinery, etc.) placed in service after January 19, 2025.
This allows companies to deduct the full cost of capital investments immediately. It effectively acts as an interest-free loan from the government, boosting near-term free cash flow for capital-intensive sectors like industrials, energy, and telecommunications. Technology is now a capital-intensive industry too!
Previously, companies were forced to amortize domestic research & development (R&D) costs over five years (a change that began in 2022). OBBBA reinstates the ability to immediately expense 100% of domestic R&D costs in the year they are incurred. This provides a massive liquidity boost for tech and pharmaceutical companies. By reducing taxable income in the current year rather than spreading it out, firms retain more cash for reinvestment or AI-related R&D.
But 100% depreciation cuts into first year profits.
IBM plans to triple entry-level hiring this year because of AI
The current storyline in corporate America is that AI obliterates the need for both entry-level workers and software engineers.
What IBM is doing is “pretty provocative,” Nickle LaMoreaux, the company’s chief HR officer, said earlier this week at Charter’s Leading With AI Summit.
- The idea is to create “totally different jobs” for people, she explained. “The entry level jobs that you had two to three years ago, AI can do most of them,” she said. “You have to rewrite every job.”
In the past an entry-level developer would’ve spent 34 hours a week coding — now they’re working on marketing, or out with clients or building totally new products versus simply maintaining old ones, LaMoreaux said.
In 2025, IBM cut its 270,000 person workforce by about 1%, driven by “business demand.” (…)
In a survey of 240 financial services CEOs released this week by EY, 60% said investment in AI would lead to maintaining or increasing headcount. 28% expected a reduction in the workforce.
Hiring at the entry level is a cheap option. One of the earliest studies on AI’s workforce impact, from 2023, found that it serves as a way to quickly train newbie employees, and helped reduce turnover.
- IBMs LaMoreaux explained: If companies simply forego hiring cheaper entry level talent, they may likely have to poach mid-level employees from competitors at a 30% premium, “and they don’t know our culture,” and it costs to get them up to speed.
- Plus, many argue that younger workers are a better bet at a time of tech upheaval, as Jo Constantz at Bloomberg points out. They are more AI fluent.
FYI: In 1985, IBM had 405,000 employees and inflation-adjusted earnings of $18 billion; in 2025, Nvidia made roughly $73 billion with just 36,000.
Canada: Headline and Core Inflation Surprise to the Downside, Driven Largely By Shelter
Headline CPI inflation ticked down to +2.3% yoy in January, below consensus expectations for a 2.4% increase.
Excluding food and energy, CPI inflation slowed to +2.4% in January (vs. +2.5% in December). However, excluding food, energy and shelter, CPI inflation edged up by 0.1pp to +2.8% (GS estimate). On a yoy basis, CPI-Trim ticked down by 0.2pp to +2.4% and CPI-Median edged down by 0.1pp to +2.5%.
On a three-month average annualized basis, CPI-Trim slowed by 0.6pp to +1.1% and CPI-Median ticked down by 0.2pp to +1.3%. On a month-over-month annualized basis, CPI-Trim ticked up by 0.5pp to +1.1% and CPI-Median increased by 1.1pp to +1.6%.
Sequential core goods inflation ticked up by 0.2pp to +0.3% in January (mom top-down GS sa), driven by firmer inflation for household equipment (+2.5%), clothing (+0.5%) and accessories (+1.1%).
Monthly services inflation ticked down by 0.8pp to -0.2% (mom top-down GS sa), driven largely by softer shelter inflation. Within shelter, rental prices fell by 0.5%, mortgage interest costs declined by 0.3%, homeowners’ replacement costs fell by 0.1% and home insurance prices fell by 0.6%.
Today’s data were soft overall, with headline inflation surprising to the downside, and the BoC’s preferred inflation measures continuing to ease. That said, the composition was somewhat firmer given that the slowdown was mostly driven by shelter. Overall, we believe today’s data support our forecast that the BoC will remain on hold at 2.25% in 2026, and we now view market pricing as more appropriately weighting the dovish risks to the BoC outlook flagged in our 2026 outlook. (Goldman Sachs)
CHEAP IS NOWHERE
BULLS ARE EVERYWHERE
Meanwhile:
The share of private equity-backed companies that deferred cash interest payments ticked higher for a third consecutive quarter, pointing to growing signs of stress, Rene Ismail reports.
Data from valuation firm Lincoln International show that 11% of fourth-quarter borrowers paid interest in-kind, which is when creditors are given more debt in lieu of cash. More than 58% of those loans featured so-called “bad PIK,” meaning that borrowers opted to delay interest payments during the life of the loan versus when the debt was originated. Lincoln analyzed more than 7,000 companies during the fourth quarter.
An unforeseen decision to start paying in-kind can often signal mounting strain, such as a cash crunch. But sometimes, borrowers will see a sudden opportunity to spend capital and bad PIK can be used as a strategic measure.
“Companies we flagged as having bad PIK went from roughly 40/60 debt-to-equity, which is reasonable, to about 76% debt today — that’s a sign of stress,” said Ron Kahn, global co-head of valuations and opinions at Lincoln, which has data going back to the fourth quarter of 2021.
Bad PIK was in 6.4% of private loans last quarter, up from 6.1% in the three months prior and substantially higher than the 2.5% ratio recorded in the last three months of 2021.
