MW A high bar for earnings means the market reaction may be 'varied and violent,' says Evercore. Here's what to do.

By Jamie Chisholm

Valuations show stocks are priced for perfection

The latest sharp market drop shows how sensitive stocks are to bad news

Futures early Monday show stocks striving to recover a fair chunk of Friday's slide, which came after President Donald Trump reignited trade angst.

A new social-media post from Trump saying that the dispute with China "will all be fine" has helped trigger traders' buy-the-dip muscle-memory.

The attempt to ameliorate market tension came quick. But then, TACO is a fast food.

However, what the episode does show is just how vulnerable stocks are to some shocks. Is it possible that the next concerns may come from the third-quarter earnings season that kicks into gear on Tuesday, when some of the big banks present their numbers?

Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, thinks it might, because unlike the start of the previous two earnings seasons, the market is entering this one with significantly improved sentiment.

To put it simply, the market has set the earnings bar pretty high.

"In contrast to the first half of the year, S&P 500 earnings per share estimates have been revised materially higher ahead of 3Q," Emanuel wrote in note that published Sunday. He said consensus third-quarter 2025 expected earnings per share growth for the S&P 500 is up 7.5%, up 10.5% for the Nasdaq-100 NDX and up 19.5% for the Russell 2000 RUT .

The more optimistic tone, according to Emanuel, has been underpinned by a stable economy, the Fed starting to cut interest rates again because it can, rather than desperately needing to, revived capital markets activity, and partnership and investment tie up announcements driving the structural AI theme.

"All of these, not to mention the S&P 500's linear rally nearing 40% from the 4/7 intraday low, have ignited corporate and investor animal spirits alike," he says.

But this has left the S&P 500 trading on a trailing P/E multiple of 25.6, Emanuel notes, among the highest outside the dot-com bubble, and a valuation that leaves little room for anything short of "perfection."

"Friday's China policy driven selloff exposed the complacency and reminds investors that even the strongest bull markets have corrections," he says, Too much complacency was evident in low volatility and stock correlations, at least until last Friday - and that's quite rare for an earnings season beginning in October, according to Emanuel.

And so, given the current state of play: "'High and higher' bars in earnings expectations and valuations mean stocks' reactions to reports are likely to be varied and violent as they were last quarter, with volatility serving as a cap on material S&P 500 rallies prior to the end of Oct. seasonality and pending favorable developments with China," he adds.

With regard to particular stocks, Emanuel reckons that those with the highest track records of beating revenue and earnings expectations, with no such double misses in the past two year, and a low score on Evercore's valuation model, are the most likely to outperform this earnings season.

The top ten by market value of what Evercore calls those "High Earnings Hurdlers" are: Cisco Systems $(CSCO)$, Boston Scientific $(BSX)$, Adobe $(ADBE)$, Stryker $(SYK)$, General Motors $(GM)$, Veeva Systems $(VEEV)$, VICI Properties $(VICI)$, Zoom Communications (ZM), Quest Diagnostics $(DGX)$, and GlobalFoundries $(GFS)$.

In contrast, stocks which frequently miss on revenue and earnings, and with at least two double misses and no more than one double beat in the past two years, and with relatively high valuations, are likely to underperform.

These are Evercore's "High Earnings Stumblers", and include: Tesla $(TSLA)$, CRH $(CRH)$, Kinder Morgan $(KMI)$, W.W. Grainger $(GWW)$, Targa Resources $(TRGP)$, AST SpaceMobile $(ASTS)$, Tractor Supply $(TSCO)$, Ameren $(AEE)$, CenterPoint Energy $(CNP)$, and Lucid $(LCID)$.

The markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as the dollar index DXY is rises, while oil prices (CL.1) jump and gold futures (GC00) are trading around $4,098 an ounce.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6552.51    -2.79%  -0.95%  11.41%   11.82% 
   Nasdaq Composite                                                     22,204.43  -2.53%  0.29%   14.98%   21.05% 
   10-year Treasury                                                     4.036      -11.60  -0.80   -54.00   -6.90 
   Gold                                                                 4093.3     2.74%   10.05%  55.09%   53.55% 
   Oil                                                                  60.03      -2.74%  -5.14%  -16.47%  -16.47% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Fed officials making comments on Monday include Philadelphia Fed President Anna Paulson speaking at 12:55 p.m.

Hong Kong stocks HK:HSI were hit as Asia traders got the first chance to react to U.S. President Trump's tariff threats.

JPMorgan Chase $(JPM)$ said it would invest $10 billion into companies critical to national security.

Blackstone (BX) said it is considering an offer for U.K.-listed Big Yellow Group (UK:BYG), sending shares in the self-storage company up by a fifth for a market valuation of nearly $2 billion.

The Dutch government said it has taken control of Nexperia, a Chinese-owned but Netherlands-based semiconductor maker.

Bond markets are closed Monday for the Columbus Day/Indigenous Peoples' Day break. The stock market is open.

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The chart

Source: Miller Tabak

The silver price (SI00) has followed gold and on Monday hit a multidecade high. But as Matthew Maley, chief market strategist at Miller Tabak, points out, the latest surge means silver "has reached the kind of overbought condition that have been followed by declines in the past."

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   AMD     Advanced Micro Devices 
   TSM     Taiwan Semiconductor Manufacturing 
   NIO     NIO 
   AAPL    Apple 
   AMZN    Amazon.com 
   PLUG    Plug Power 
   BABA    Alibaba 

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-Jamie Chisholm

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October 13, 2025 06:35 ET (10:35 GMT)

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