Here comes an earnings season for the skeptics

Earnings season’s bar has been lowered, but that doesn’t mean it’s easier to clear. Analysts expect U.S. companies to post softer profit growth in Q3 — roughly half the pace of the spring surge — as margin magic gives way to cost math. Big Tech is still doing the heavy lifting, but for everyone else, “resilient consumer demand” has started to sound like a dare.

After two quarters of double-digit gains, earnings growth for the S&P 500 is projected to slow to about 8.8% year-over-year, down from roughly 13% in Q2 and 11% in Q1. Strip out oil and gas, and the number inches up to 9.6%, but the story is the same: The profit engine is still running — just not at full throttle. Investors are hunting for proof that the next leg of the rally can stand on fundamentals.

The macro backdrop isn’t exactly welcoming. The Atlanta Fed’s GDPNow has Q3 growth tracking near 3.1%, a reminder that momentum’s still decent but cooling fast. Inflation held around 2.9% in August after 2.7% in July, and the 10-year Treasury parked a little above 4%, keeping valuations taut and nerves tighter. It’s a mix that doesn’t scream crisis — just a market where even ordinary numbers can feel like warning signs.

Where are the cracks — and the chances

The slowdown isn’t evenly spread. Information technology, per FactSet, remains the growth engine with about 21% earnings growth expected, followed by communication services and financials. And further FactSet data shows that IT has among the largest upward revisions and the highest growth expectations, but that also means it’s carrying a heavy load — any stumble there carries amplified consequences.

On the other end of the scoreboard, energy and consumer staples are forecast to shrink, collateral damage from whipsawing commodities and sticky costs. The mix leaves the market’s upside lopsided — the hot stocks have to stay hot, while the defensive ones can’t afford a chill.

Energy, in particular, looks fragile. Crude oil’s slide and uneven refining margins have analysts cutting forecasts by the week. ExxonMobil, which reports at the end of the month, warned in its latest 8-K that every few dollars’ move in oil could swing profits by hundreds of millions. Staples face a slower-burn headache: input inflation and consumer fatigue. Price hikes that padded earnings last year now risk repelling shoppers. The result is a setup where even a solid quarter could land like a shrug.

‘Overlooked’ stocks could have a moment

Goldman Sachs says these 20 “overlooked” names — from Celsius Holdings to Cameco, Wynn Resorts, and Broadcom — are set to spike. In a market obsessed with the same few tickers, the quiet achievers could conceivably deliver the loudest Q3 reactions. Goldman’s note points out that last quarter saw the wildest earnings-day stock moves since 2009; conviction, not magnitude, moved prices. 

But the real tell won’t come from the numbers. It’ll come from the calls — the tone, the hedges, the confidence (or lack thereof) that filters through every line about pricing power or “strategic discipline.” With Washington’s shutdown still clogging the data pipeline, corporate guidance could become a reliable macro indicator. When Delta beat expectations this week and talked up its premium fliers, the market rewarded the mood more than the math.

Opening acts, high stakes

Valuations make the stakes sharper. The S&P 500’s forward P/E now sits near 23×, well ahead of its 10-year average. That doesn’t mean “expensive” — it means “no margin for sloppy.” Meanwhile, revenue growth assumptions haven’t been generous: Consensus estimates put Q3 at around 5.9%, which means companies have to protect margins just to hold the line.

As of Friday, 23 S&P 500 companies have reported, and 78.3% have beaten estimates — a touch above long-run norms — with 35 more set to report next week. The first wave will belong to the banks. JPMorgan, Goldman Sachs, and Morgan Stanley will set the tone next week, testing whether the long-promised rebound in dealmaking is real or still theoretical. If investment banking really is back, it may help offset the drag from energy’s slowdown and consumer fatigue elsewhere in the index.

Johnson & Johnson and BlackRock are also on deck, giving an early read on healthcare pricing power and asset-gathering appetite. These next two weeks will largely define the quarter’s tone — and likely, the rest of the year’s revisions. The narrower the earnings base, the faster sentiment can shift if leaders falter.

The credibility quarter

This season isn’t about home-run earnings — it’s about staying believable. The AI build-out, the consumer plateau, the energy slump, all of it funnels into a single question of narrative control. Can executives prove that last year’s spending sprees and pricing power still have legs? Or are we entering the era of beautifully managed mediocrity?

Add in the macro drag, and the test becomes less about outperformance and more about endurance. A miss won’t tank a company; an incoherent story might.

If the second quarter was about velocity, the third is about credibility. Growth is slowing, patience is thinner, and the market’s attention span is shorter than ever. A clean quarter, a confident tone, and a hint of realism might be the only things left that still qualify as a surprise. The winners this quarter won’t be the loudest or the flashiest — they’ll be the ones that can narrate their own slowdown without losing the room. Because in a market where optimism’s already capitalized, credibility might be the last asset still trading at a premium.