Despite delivering one of the strongest earnings seasons in recent years, corporate performance has failed to excite investors, according to a report by Goldman Sachs strategist David Kostin on October 31. Approximately two-thirds of S&P 500 companies have reported results so far, with 64% beating earnings estimates by at least one standard deviation—a level Kostin described as "unprecedented outside the post-pandemic reopening period."

The outperformance was driven by steady revenue growth and stable margins, with total sales up 6% year-over-year and margins holding at around 11.8%. However, the market's reaction has been muted: companies that exceeded expectations saw a median excess return of just 0.3 percentage points relative to the index on the day following their earnings release, well below historical averages.

Goldman Sachs attributes the lukewarm response to investors' skepticism about the quarter's relevance for future earnings, citing trade policy volatility, bank lending conditions, and broader macroeconomic uncertainties as key concerns.

**Earnings Growth Slows, but Outlook Stays Upbeat** While overall results remain robust, earnings growth has decelerated. S&P 500 companies are projected to report an 8% year-over-year increase in earnings per share (EPS), down from 11% in Q2. Nevertheless, corporate guidance remains optimistic. Nearly half of the companies providing Q4 forecasts expect profits to surpass analyst estimates, and Wall Street has raised its 2026 consensus EPS forecast for the S&P 500 by 2% to $308.

**AI Investment and Labor Efficiency Take Center Stage** Tech giants continue to drive capital expenditure in artificial intelligence (AI). The "hyperscale" group—comprising Amazon (AMZN.US), Google (GOOGL.US), Meta (META.US), Microsoft (MSFT.US), and Oracle (ORCL.US)—is projected to spend $518 billion on capex in 2026, a 65% increase from early 2025. Goldman notes that investors only reward AI spending when paired with strong earnings.

Meanwhile, companies are tightening labor costs. Since September 2025, 17 S&P 500 firms have announced layoffs totaling roughly 82,000 employees, though few are directly tied to AI. Nearly half of earnings calls this quarter highlighted AI-driven productivity gains.

**Credit Conditions and Market Outlook** Loan losses at some regional banks have drawn attention to non-bank lending. Goldman analysts view these issues as "idiosyncratic" rather than systemic, noting that such loans represent 13% of U.S. commercial bank lending, with nearly half remaining untapped.

Goldman maintains its S&P 500 EPS forecasts of $262 for 2025 and $280 for 2026, projecting the index to reach 6,800 by late 2026 and 7,200 within 12 months. Kostin concluded that while Q3 earnings demonstrated solid fundamentals, limited investor enthusiasm reflects a preference for predictability over surprises—and caution toward macro uncertainty.