Market Outlook

The Good

Besides, the trade skirmishes and the extremely high valuations of 22.5x earnings, Q3 S&P earnings should be excellent.  Most companies tend to sandbag – under promise and over deliver, the fact that they’re guiding higher, and way above the 10-year and 5-year average means it's going to be a blow out earnings season.

According to FactSet

• Companies issuing positive EPS guidance are 56/112 or 50% - well above the 5-year average of 43 and well above the 10- year average of 39.
• The highest number of S&P 500 companies issuing positive EPS guidance for a quarter since Q2 2021 (66) and highest percentage of S&P 500 companies issuing positive EPS guidance since Q3 2021 (57%).
• This is the highest since 2006. The previous record was 29, which occurred in the previous quarter (Q2 2025), so sequentially strong as well.
• Second-largest increase in its bottom-up EPS estimate (+3.6%) for Q3 2025 during the quarter.
• The Information Technology sector has the highest estimated earnings growth rate of all ten sectors for Q3 2025 at 20.9%.
• The Information Technology sector has the highest number of companies issuing positive EPS guidance of all 11 sectors at 36, which is 75% above the 5-year average of 21.4 and almost 100% above the 10-year average of 19.5 for the sector.

Wedbush released a note this morning expressing confidence in the M-7, claiming that their channel checks indicate strong demand for enterprise AI solutions from Microsoft Azure, Google Cloud and Amazon Web Services.

The Bad

Most of the strong earnings should already be priced in.

The S&P 500 trades at 22.5, 12.5% above its 5 year average of 20, and 25% above its 10-year average of 18. Importantly, the 10-year treasury is now around 4.1%, which is high for a multiple of this size.

High Bullish Sentiment: Excitement over the artificial intelligence trade is stoking investor bullishness on US stocks while also

raising the risks of a rapid selloff, according to Goldman Sachs Group Inc.’s trading desk. Bullish sentiment among the firm’s clients

stands at the highest since December 2024, with 40% of those surveyed expecting the S&P 500 Index to outperform other major

global indexes in October. “Not so distant talks about high valuations and ‘bubble’ territory are forgotten as investors are ready to pile

back into stocks,” Oscar Ostlund, global head of content strategy, market analytics and data science for Goldman’s digital platform

Marquee, wrote in a report. FOMO, or the fear of missing out, “is starting to creep as the cost of being on the sidelines might be

tipping the scales right now,” he added.

The Ugly

The markets are always leading indicators or forward looking, and the best and perhaps the most extreme

example I can give you is Nuclear power generating, mini reactor OKLO which is already priced at $20 Bn with the first real earnings

expectation of $1Bn in 2031.

OpenAI's exposure to deals is already in several hundreds of Billions with annual revenue run rate of  just $13Bn, the exposure to either funding delays or cancellations of projects will be terrible for the markets, especially since OpenAI is forecast to be cash flow negative for the foreseeable future - they're basically spending other people's money.

As is Mira Murati (Ex OpenAI CTO), whose recent $2Bn funding round had this quote from an investor "It was the most absurd pitch meeting, So we’re

doing an AI company with the best AI people, but we can’t answer any questions.’