Despite persistent macroeconomic headwinds, corporate earnings are delivering. Markets may have wobbled Friday on Amazon’s weaker-than-expected guidance, but the broader takeaway for RIAs is this: Earnings are exceeding expectations, and the market is rewarding performance.
Even with a pullback to close the week, the S&P 500 remains up nearly 7% year-to-date and finished July in the green—up almost 1%—as earnings season kicked off. The headline: companies are beating, and the market is responding.
Out of 317 S&P 500 constituents that reported through Friday morning, 83% exceeded Wall Street profit expectations, according to Evercore ISI. Revenue surprises are also notable—on average 2.6% above consensus. But the real story lies in profitability: earnings are coming in 8.3% higher than analysts forecasted, a signal that margins are expanding.
In practical terms, this tells advisors that companies are successfully managing costs despite inflationary pressures. Labor, marketing, and operational expenses are rising, but not enough to weigh down the top-line growth—and that’s what’s powering equity performance.
Historically, when firms deliver upside on both earnings and revenue, they see a post-report bump. This quarter, companies are gaining an average of 1.4% the day after earnings beats. And yes, misses or soft guidance are penalized more sharply in a high-expectation environment—but that’s in line with a market near all-time highs.
For clients with concentrated tech exposure or seeking alpha in growth sectors, this quarter is offering support for those allocations. Meta Platforms, for instance, beat EPS estimates by 21% last week. Revenue was 6% above expectations, driven by strong AI-fueled advertising performance and time-on-platform metrics. With expenses relatively in line, Meta posted a blowout quarter.
Perhaps more importantly, Meta’s forward guidance turned heads. With midpoint projections for $49 billion in Q3 revenue, the company implied 21% year-over-year growth. That kind of consistent topline acceleration—in a slowing economic backdrop—was enough to send the stock up 11% on the day. Despite having gained 51% over the past year, Meta proved there's still room to run when execution is this strong.
Microsoft followed a similar path. The software giant beat top-line expectations by just over 3%, with EPS coming in 5.3% higher than forecast. Operating margins outpaced consensus. Shares climbed nearly 4% the next day, a strong move for a $3 trillion company already up 25% year-over-year.
The catalyst? Azure. Microsoft’s cloud business grew 34% year-over-year—accelerating growth from 2024’s levels—driven by enterprise adoption of AI-driven software. The message to investors: Microsoft remains a leader in monetizing the AI buildout.
Apple joined the trend Thursday evening. The company beat sales and earnings expectations and issued upbeat Q3 guidance, pointing to continued growth driven by AI and services. Shares rose nearly 2% Friday morning before dipping amid broader selling pressure later in the session.
For advisors, the broader theme is this: Big Tech is outperforming, and it’s pulling the rest of the market with it. Optimism around AI investment is spilling over into adjacent sectors. Software names—Oracle, up 48% year-to-date, is a standout—and semiconductor and hardware suppliers linked to cloud infrastructure are riding the same wave.
As Microsoft and its peers scale out data center spend, beneficiaries across the supply chain—from chipmakers to power systems manufacturers—are seeing upside. Advisors looking for second-derivative plays on AI momentum should note the strength in these verticals.
It’s not all tailwinds, of course. Geopolitical uncertainty, potential tariff escalation, and inflation's long-term effects still cloud the picture. But the data points from corporate earnings are clear: companies are navigating the landscape well, and profitability trends are improving, not deteriorating.
That’s good news for equity allocations across client portfolios. Strong earnings give investors a reason to stay long risk assets even as the market recalibrates rate-cut expectations. More importantly, it reinforces the discipline of staying focused on fundamentals—not noise.
Bottom line: earnings season is working. The market is rewarding execution, especially where pricing power, margin discipline, and secular growth trends intersect. RIAs can use this backdrop to reinforce confidence with clients, particularly those wary of volatility or hesitant to deploy capital.
There will be setbacks—Amazon’s stumble is one. But broadly, corporate America is beating the street, and the market is listening. This isn’t the time to overthink it.
