Check-up time has arrived again (for the companies).

October 6th, 2025

The 3rd quarter earnings season is about to start , with the major banks in the US reporting first, early next week. For the S&P500, expectations have modestly risen lately, as the estimated (year-over-year) earnings growth rate is now at 7.9%, compared to the estimated 7.3% on June 30. In terms of revenues, analysts have also raised their estimates during the quarter. As of today, the S&P 500 is expected to report (year-over-year) revenue growth of 6.3%, compared to the expectations for revenue growth of 4.8% on June 30. Eight of the eleven sectors are projected to report year-over-year growth, led by Information Technology, Utilities, Materials, and Financials. On the other hand, Energy and Consumer Staples are predicted to report a year-over-year decline in earnings .

In Europe, we could perhaps start seeing the tariffs' impact in the results or in the forward guidance. With consumer-related stocks having rallied significantly and valuations having increased against a negative backdrop for sales/profit growth, reality could soon kick-in. During the previous quarter, exporters were selling primarily the inventory which had already been shipped to the US before the end of March, but by now that inventory must have been depleted. At this point we would reference a survey conducted by the "UBS Evidence Lab" among senior officers in European large and small companies, which took place right after the 15% US tariffs on EU exports were formalized. As per this periodical survey, after corporates expressed surprising optimism in the second quarter, likely related to the German fiscal stimulus, the results of the Q3 survey indicate a significant deterioration in sentiment. Are sales and profit warnings going to dominate ? We are awaiting the results in the next 2-4 weeks with great interest.

Back to the survey, the declines were most pronounced in the industrials and consumer sector, both in small and large companies, which is consistent with a negative tariff impact: small firms on average have less flexible supply chains and thus scope to react to tariffs; large companies typically have the most international exposure. On aggregate, Eurozone business sentiment, expected sales revenues, pricing power and profit margin expectations all weakened. Capex intentions fell to their weakest level in more than two years and also the euro exchange rate was cited more than usual as headwind for investments. Encouragingly, employment plans remained unchanged and continue to signal job growth. Pricing power expectations showed the strongest decline this quarter as they turned negative for the first time since Q4 2022 - in the middle of the energy crisis - and imply that more companies expect weaker than stronger pricing power over the next year. This indicates doubts about the companies ability to pass the tariffs to the consumers and profit margins could be impacted.

Eurozone September inflation rose to 2.2%, in line with expectations. Overall, the pick-up in energy inflation, primarily driven by base effects, more than offset a decline in food inflation and stable core inflation. Core inflation, which excludes food and energy prices, remained unchanged at 2.3% again in line with the consensus forecast. Within core, services inflation ticked up 0.1pp to 3.2%, while goods inflation remained unchanged at 0.8% y/y. It is becoming clearer that the ECB's easing cycle has ended and we expect the ECB to keep the depo rate unchanged at 2% for the foreseeable future. Following the last ECB meeting on 11 September, President Lagarde said the ECB "continues to be in a good place" and while they previously saw the risks to the Eurozone growth outlook as skewed to the downside, it now regards them as more balanced. What the (equity) markets have not discounted yet is a potential return to rate hikes by the ECB in the second-half of next year, as growth and inflation pick-up.

In absence of the monthly non-farm payrolls, the market focused on the labor market data provided by private company ADP. Its monthly payrolls number is usually significantly different than the one provided by the Bureau of Labor Statistics, which was closed last week due to the US government shutdown. Although ADP is responsible for handling the salary payments of about 25% of US large and medium size companies, its monthly payrolls number is overlooked by analysts and investors. Still, we should mention that the September number dropped to a negative -32k, and the +54k August figure was revised downwards to -3k.

The US government shut down on Wednesday morning, as the two parties failed to find common ground, in order to extend the debt ceiling. Surprise surprise this is the second time that the US government has to shut down in the last ten years, the previous one was again during Trump's administration in late 2018. As history has shown there is no real impact on the stock market, as usually the situation is resolved within days or a few weeks, with limited damage on the economy. Moreover, the furloughed employees will receive retrospectively their payment for the period that they were "temporarily fired". But this time around, Trump is threatening to permanently close down some agencies and fire tens of thousand of government employees. This will change things, for sure.

Equities had a very good week, with Europe outperforming the US. The continuation of the rally in consumer-related stocks, which we had highlighted at its infancy a few weeks ago, as well as the spike in healthcare stocks helped Europe post a 3% weekly gain. The uncertainty of the US government shutdown as well as the technical breakout of the Euro Stoxx 50 index brought back investors into the region's shares. The US indices rose by a less remarkable 1%, with a very mixed performance among sectors. Healthcare (+7%) was the standout, after news about the Pfizer-Trump deal broke which could be used as a template for the other companies as well. Without getting into technical details of this complex deal, the result it that the immediate tariff impact will be much less than feared and there is a 3-year grace period, which means that it will expire when Trump and/or Republicans might not be there anymore. The market cheered.

Bonds had a mildly positive week, as the macro data were scarce. The small rise in Eurozone inflation was a non-event and the German yield curve followed the US slightly lower (i.e. prices moved higher). Still, the German 10yr is trading in a tight range for months now (2.65%-2.75%) as the market has taken the view that no more cuts are coming from the ECB and at the same time the German spending bill will impact the economy (positively) primarily in 2026, so inflation and wage pressures might appear. The path of least resistance is for yields to move higher. In the US, the negative labor market data (ADP) pushed yields lower, with the 10yr closer to 4.10% again. The situation here is totally different, as the FED has embarked on a new rate-cuts cycle at a time when inflation is moving higher.

The dollar was a touch stronger against most major currencies. We had highlighted recently the significant 14-year support for the dollar index (DXY) which was tested when the EURUSD touched the 1.1850 level. For the moment this support has held up well, as the EURUSD retreated all the way closer to 1.1700. It is futile to try predict the foreign exchange market as the movement of currencies is the byproduct of so many parameters, often conflicting with each other. What we can say however is that since Trump's elections and as the data show there has been an ongoing, clear move away from the dollar by international market participants (investors, central banks, sovereign wealth funds). Nobody knows if the dollar's demise is a multi-year trend as China, India and Latin America seem to have been reducing their exposure and dependence on it , or just a blip.

Chart of the Week : What do the company target prices mean for the S&P500 for the next 12 months ?

In the above chart compiled by FactSet, the dark blue line is the theoretical target price of the S&P500, calculated by aggregating the median target price estimates (based on company-level estimates submitted by industry analysts) for all the companies in the index, 12. The light blue is the actual S&P500 price evolution. As can be seen, the bottom-up target price for the S&P 500 is now at 7,358.64, which is about 10% above current levels. At the sector level, the Health Care (+15.5%) and Staples (+14%) together with Technology (+13%) are the ones that are expected to see the largest price increase, according to the current targets. Of course throughout the next 12 months downgrades can happen in any of these sectors, so we should not take them "for granted".

Disclaimer

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• Sources: Chart of the Week : FactSet