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Last week was another one for the record books. The S&P 500 and Nasdaq Composite both closed at record highs on Friday, as each index has done more than 30 times since the start of 2025. Stocks were rising again on Monday on hopes that Thursday’s meeting between President Donald Trump and China’s Xi Jinping will bring a trade breakthrough.
While a trade deal would be good news, some investors are worried nonetheless that the market is getting ahead of itself. It is atypical for the S&P 500 and Nasdaq to be up 15% and 20%, respectively, during the third year of a bull market, tariffs remain unsettled, and artificial- intelligence spending is starting to look like a closed loop.
That makes it even more important that the Magnificent Seven earnings reports this week turn out to be, well, nothing short of magnificent.
Yet it is too soon for gloom. Consider third-quarter earnings season.
About a third of S&P 500 companies have reported so far, and 86% of those have delivered better-than-expected profits, compared to the median of 73% going back over 20 years, notes 22V Research’s Dennis DeBusschere. Sales beats came in at 83%, compared with the median 63%.
Economic data remain supportive.
“While there is an increasingly vocal group of doubters about the sustainability of the market strength, the aggregate S&P 500 earnings results so far in the third quarter, and frankly throughout 2025, have continued to surprise to the upside,” writes Trivariate Research President Adam Parker.
“The conventional wisdom is that analysts are always too optimistic,” Parker says. “That has not been true over the last several months, despite the fact many of us anticipated a negative impact on corporate earnings from tariffs and a slowing economy earlier in the year.”
To wit, the consensus earnings per share estimate for the S&P 500 now stands at $269, up from $263 at the start of the quarter. Tech, communications services and financial companies, which make up the lion’s share of the index, have been putting up strong numbers.
“It is highly unusual for market level estimates to RISE over an 18-month period like this, as corporates aren’t lowering the bar to clear the hurdle, but actually delivering relative to expectations prior to a lowered bar,” Parker notes.
That will be put to the test later this week, with earnings from Alphabet, Amazon.com, Meta Platforms, Microsoft, and Apple.
Yet the “setup looks quite attractive heading into earnings, especially for names like Microsoft, Meta, and Amazon that have been lagging since last quarter–which means there’s solid upside potential if they deliver,” analysts at SpearPoint Management say. Growth in revenue from cloud-computing services is holding steady, advertising is up, and companies are likely to keep spending big on AI–a vote of confidence for its development.
“The AI narrative is maturing nicely,” SpearPoint says. “Yes, investors will press on usage metrics, return on invested capital, and product roadmaps, but that’s actually healthy. It shows the market is moving from ‘will AI happen?’ to ‘how profitable will it be?’- a much better question to be asking.”
Still, investors shouldn’t be surprised by hiccups. Expectations for the Magnificent Seven companies reporting this week are high but nebulous, warns DeBusschere, “What could trigger a selloff or sharp run higher, especially in the AI derivative plays that retail traders are focused on, is hard to define,” he says.
The focus will also be on other tech companies whose earnings are getting an AI boost. It is important that they show higher earnings, both for the sake of their stocks and because that would confirm more companies than the Mag Seven are benefiting from AI.
Parker also warns of a possible setback, saying that “we could see a sharp rotation underneath the surface [of the rally], or even a growth scare at some point,” potentially before the end of the year.
“We will likely get some violent rotations out of the AI trade on the bigger picture upward path, given how correlated so much of the market is to the AI trade,” Parker says. But the U.S. is likely quarters or years from the troubling point when it has built too many data centers, he and other market watchers believe.
“The ultimate end of the AI trade is NOT near,” Parker says.
For his part, DeBusschere notes that financial conditions remain easy, economic data is firm, and productivity has been stronger than expected. By his math, “the market is not overvalued, given the solid outlook for forward cash return, relative to the 10-year yield,” he says.
In short, a lot rests on AI and big tech this week, but a resilient economy and strong earnings from other parts of the market mean that not everything depends on seven stocks.
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