The Q3 earnings season is underway, with almost 80 companies gearing up to report, including 35 from the S&P 500. Major banks like JPMorgan and Bank of America are in the spotlight this week, along with key players like Johnson & Johnson and United Airlines. We expect Q3 earnings to grow by 5.7%, along with a 6.1% rise in revenues compared to last year. This is better than the 4.2% earnings growth predicted at the beginning of Q3 in July. While actual earnings often exceed forecasts, if we stick with the 5.7% growth, it will be the slowest rate since Q3 2023.

Revisions And Trends

Revisions have improved in 6 of the 16 Zacks sectors, especially in Tech, Finance, and Energy. However, Basic Materials and Consumer Staples are struggling. The positive changes in Finance and Tech have boosted overall trends since these sectors contribute significantly to total earnings. The good revision trend is expected to continue into Q4 2025, impacting Finance, Tech, and Energy sectors. Key results from JPMorgan and Bank of America are crucial. JPMorgan’s earnings are predicted to rise by 10.5% with a 5.2% revenue increase, while Bank of America looks for a 16.1% earnings boost with 7% more revenue. We’re entering this Q3 earnings season on a positive note since analysts have been raising their forecasts for months. The recent September inflation report, showing a manageable 2.8%, supports a stable market, reducing the chances of surprise interest rate hikes from the Federal Reserve. With S&P 500 earnings projected to grow by 5.7%, we believe this is a base level, as companies often beat initial expectations. Therefore, we should consider bullish strategies for broad market indices like the SPX. The CBOE Volatility Index (VIX) is currently near 16, indicating low fear and potentially inexpensive protection against surprises.

Opportunities And Strategy

This week, the focus is on major banks, which will confirm the positive outlook for the Finance sector. JPMorgan reports tomorrow, and its results will influence market trends. We aim to see if they can support the positive estimate revisions that have raised their expected earnings per share by over 7% in the last three months. There’s a clear divide between sectors for potential pairs trades. While Tech and Finance have had strong upward revisions, Basic Materials and Consumer Staples have not kept up. This points to opportunities in buying call options on leaders in the XLK and XLF ETFs, while considering put options on laggards in XLB and XLP. The positive revision trend is expected to carry into the fourth quarter, which may help support the market through the end of the year. The slight drop in the 10-year Treasury yield to around 4.3% also creates a better backdrop for growth sectors. We will keep an eye on company guidance this week to confirm that this positive momentum is likely to last into 2026. Create your live VT Markets account and start trading now.

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