View from the Observation Deck

It had been over a year, so we thought we’d dust this post off and provide an update regarding which of the two styles (growth or value) has been delivering the better results. Click here to see our last post on this topic.

• We have often noted that value stocks tend to outperform growth stocks when the yield on the benchmark U.S. 10-year Treasury note (T-note) rises and underperform them when the yield on the 10-year T-note falls. The yield on the 10-year T-note increased by 340 basis points (bps) over the 5-year period ended 9/12/25. For comparison, the yield on the 10-year T-note declined by 51 bps YTD through 9/12.
  
  
• When we last posted on this topic in July 2024, the Federal Reserve had yet to implement any policy rate reductions. Since then, there have been three reductions to the federal funds target rate totaling 100 bps, with more cuts likely in the coming days and months. As we see it, these reductions may explain, in part, the surging total return enjoyed by the S&P 500 Pure Growth Index over the trailing 1-year period represented in today’s chart. 
  
  
• The total returns in today’s chart are as follows (Pure Growth vs. Pure Value):

          25-year avg. annual (7.92% vs 9.60%) 
          15-year avg. annual (14.44% vs. 12.27%)
          10-year avg. annual (12.57% vs. 10.00%)
          5-year avg. annual (12.51% vs. 17.51%)
          3-year avg. annual (13.76% vs. 10.25%)
          1-year (29.35% vs. 18.20%)
          YTD (16.07% vs. 11.46%)

• On 8/29/25, Industrials accounted for 24.1% of the weight of the Pure Growth Index, according to S&P Dow Jones Indices. At 18.8%, Financials made up the largest weighting in the Pure Value Index as of the same date.
  
  
• With a YTD total return of 15.69% (through 9/12), Industrials were the third-best performer of the 11 major sectors in the S&P 500 Index. By comparison, Financials posted a total return of 12.14% over the same period.
  
  
• The top three performing S&P 500 Index sectors and their YTD total returns (through 9/12) are as follows: Communication Services (24.97%); Information Technology (17.81%); and Industrials (15.69%). As of 8/29/25 those three sectors comprised a combined 51.0% and 12.9% of the total weighting of the Pure Growth and Pure Value Indices, respectively.

Takeaway: The Pure Growth Index outperformed the Pure Value Index in five of the seven time periods presented in today’s chart. While this blog post does not account for changes to index constituents over time, it is notable that Pure Growth’s most recent outperformance appears to be driven largely by sector allocation. The three top performing S&P 500 sectors YTD account for 51.0% of the weight of the Pure Growth Index but just 12.9% of the weight of the Pure Value Index. That said, valuations may signal opportunity ahead for value-oriented investors. The Pure Value Index had a Price to Earnings (P/E) ratio of 13.32 on 9/12/25, below its 15-year average of 13.41. By comparison, the Pure Growth Index had a P/E ratio of 28.07 at market close on the same date, above its 15-year average of 23.50. Are future rate cuts already priced in the Pure Growth Index, or is there more room to run? Stay tuned!

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P 500 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings-change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. 

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View from the Observation Deck

Total assets invested in covered call strategies have grown rapidly over the past several years. Data from Morningstar Direct reveals that net assets in the “derivative income” category of ETFs increased by $33 billion in 2024 to a total of $97 billion for the calendar year. In a signal of continued interest, investors funneled a record $7.5 billion into the asset class in July 2025 alone.

Covered call strategies tend to be most beneficial when the stock market posts negative returns, or when returns range from 0%-10%.

The S&P 500 Index posted a negative total return just three times in the table above. The CBOE BuyWrite Index outperformed the S&P 500 Index in two of those three years (missing the third year by 0.39 percentage points in 2018). For comparison, there are four years in the table where the S&P 500 Index posted returns between 0% and 10%. The CBOE BuyWrite Index outperformed the S&P 500 Index in three of the four years (missing the fourth year by 0.66 percentage points in 2005).

Covered call options can generate an attractive income stream and serve as a hedge against negative price movement, but they may limit the potential for capital appreciation.

There were 13 years in today’s table where the S&P 500 Index notched total returns of 10% or more (not including the current year). The CBOE BuyWrite Index underperformed the S&P 500 Index in every one of them, including last year when the S&P 500 Index increased by 25.00%, while the BuyWrite Index increased by 20.12%.

Takeaway: Covered call strategies may serve as a unique alternative to the S&P 500 Index. That said, while the income they provide has generally led to outperformance during negative or moderately positive periods, returns are often capped during times where the market is performing exceedingly well. As a recent example, the S&P 500 Index surged by 25.00% in 2024, outperforming the CBOE BuyWrite Index by 4.88 percentage points. When we last posted on this topic, the tables were turned, with the CBOE BuyWrite Index outperforming the S&P 500 Index by 0.56 percentage points on a total return basis (thru 3/5/25). As revealed in today’s table, the S&P 500 Index surged since then and is now up 11.73% YTD thru 9/9 compared to an increase of 1.15% for the CBOE BuyWrite Index over the same period (total returns). Even so, investors continue to allocate record amounts of capital to derivative income instruments. Will heightened volatility from tariffs, geopolitical strife, and deteriorating economic data prompt investors to continue purchasing these strategies? We will report back as updates require.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The CBOE S&P 500 BuyWrite Index (BXM) is designed to track a hypothetical buy-write strategy on the S&P 500. It is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) "writing" (or selling) the near-term S&P 500 Index (SPXSM) "covered" call option.

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View from the Observation Deck

Today's blog post highlights the disparities that often exist between the equity returns posted by mining companies and the spot price performance of physical gold and silver. Since precious metals tend to be priced in U.S. dollars, we also included a column that tracks the relative strength of the U.S. dollar against a basket of other major currencies.

• Precious metals have historically been considered potential inflation hedges by investors. From 1926-2024, the 12-month rate of change on the Consumer Price Index (CPI) averaged 3.0%, according to data from the Bureau of Labor Statistics. It stood at 2.7% at the end of July 2025, down from its most-recent high of 9.1% set in June 2022, but up from its most recent low of 2.3% in April of the same year.
  
  
• The price of gold has been surging, setting multiple record highs. The spot price of one ounce of gold stood at a record $3,586.69 on 9/5/25, up 42.51% year-over-year (y-o-y).
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• The spot price of silver has also increased by a considerable amount, surging by 41.87% in 2025 alone (thru 9/5). That said, unlike gold, the spot price of silver has not recovered to its all-time high. The price of one ounce of silver stood at $41.00 on 9/5/25, 17.08% below its all-time high of $49.45 set on 1/18/80.
  
  
• The spot price of the U.S. Dollar Index declined by -9.88% YTD through 9/5. 
  
  
• From 2010 through 2024, the Philadelphia Stock Exchange Gold & Silver Index posted a positive total return in seven of the 15 calendar years. Six of them occurred from 2016 through 2024. It has increased by a staggering 92.22% YTD (see table), marking the first time since 2019 that it outperformed both gold and silver spot prices. 

Takeaway: While continued tariff trepidation and a spate of mixed economic data offer one explanation for the stunning YTD returns posted by the safe haven assets in today’s chart, we don’t think they tell the whole story. Notably, the dollar’s devaluation deepened since our last post, with the U.S. Dollar Index’s price return reflecting a decline of 9.88% YTD (thru 9/5) compared to -4.05% YTD thru 3/21 (data from our last post on this topic). We think this development reflects investor’s concerns over the Federal Reserve’s (“Fed”) upcoming policy decision next week. Should the Fed decide to cut interest rates in September, it would do so despite inflation’s recent uptick from 2.3% in April to 2.7% in July. Additionally, the Fed has consistently touted 2% as its goal for the metric, and we’re not there yet. Demand for gold as an investment has been seemingly insatiable. The World Gold Council reported that global demand for gold stood at a record 4,975 tons in 2024. Of that total, 1,180 tons were held for investment purposes, up 25% y-o-y. Notably, 477 tons of gold were purchased for investment purposes in Q2’25 alone, representing an increase of 78% y-o-y. We expect the recent surge in the value of safe haven assets may continue if global risks to stability persist.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. There can be no assurance that any of the projections cited will occur. The Philadelphia Stock Exchange Gold & Silver Index is a capitalization-weighted index comprised of the leading companies involved in the mining of gold and silver. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

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View from the Observation Deck

We update this post on small-capitalization (cap) stocks every now and then so that investors can see which of the two styles (growth or value) are delivering the better results. Click Here to view our last post on this topic.

A quick word before diving into today’s observations.

Equity markets have been volatile this year, with the S&P 500 Index (“Index”) plummeting by 18.90% (price only) between 2/19 and 4/8. The Index’s price has surged since then (up 29.77% between 4/8 and 8/26), propelled higher by potential reductions to the Federal Reserve’s (“Fed”) policy rate and improving earnings estimates, in our opinion.

On 8/26/25, the S&P SmallCap 600 Pure Growth (Pure Growth Index) and S&P SmallCap 600 Pure Value Indices (Pure Value Index) sat -8.17% and -1.54%, respectively, below their all-time highs.

As mentioned above, equity market volatility has been widespread this year. From 12/31/24 to 4/8/25, the Pure Growth and Pure Value Indices saw price returns of -16.93% and -25.27%, respectively. Prices have soared since then, sending the Pure Growth and Pure Value Indices surging by 30.89% and 41.00% between 4/8 and 8/26 (compared to 29.77% for the S&P 500 Index). 

The Pure Value Index outperformed the Pure Growth Index in four of the six time frames covered by today’s chart.

The last time we posted on this topic this statistic was reversed. As we see it, these observations may unveil investors’ preference towards value companies (those with comparatively mature balance sheets and stable cash flows) during periods of heightened market volatility. Tellingly, the 5-year and 3-year average annualized returns above span periods where pandemic-era policies remained in place, while the 1-year period includes periods of weakening economic data and an increasingly hostile geopolitical landscape.

The total returns in today’s chart, through 8/26/25, were as follows (Pure Growth vs. Pure Value):

• 15-year average annualized (11.48% vs. 11.23%)
• 10-year average annualized (7.94% vs. 9.48%)
• 5-year average annualized (9.13% vs. 18.79%)
• 3-year average annualized (9.97% vs. 10.98%)
• 1-year (6.03% vs. 9.95%)
• YTD (9.32% vs. 6.80%)

Takeaway: Let’s set aside the growth vs. value comparison for a moment and touch on Jerome Powell’s dovish comments at his speech in Jackson Hole on Friday. Smaller companies saw greater gains than their peers in the wake of his commentary, in which he hinted that further interest rate cuts could be forthcoming in September. Case-in-point, the Russell 2000 Index increased by 3.72% (price-only) between 8/21/25 & 8/26/25, compared to 2.39% and 1.50% for the S&P MidCap 400 and S&P 500 Indices, respectively, over the same period. There are a myriad of potential explanations for this outperformance, but one of them strikes us as particularly intriguing. Small caps tend to hold a comparatively larger portion of variable debt in their capital structure – debt which could become cheaper to service as rates decline, freeing up cash flows for use in other, more profitable projects. Notably, the ratio of variable debt to total debt for the companies that comprise the Russell 2000 Index stood at 32.23% on 7/31/25, compared to just 8.40% for the S&P 500 Index. 

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The Russell 2000 Index is a small-cap U.S. stock market index that makes up the smallest 2,000 stocks in the Russell Index. The S&P SmallCap 600 Index is an unmanaged index of 600 companies used to measure small-cap U.S. stock market performance. The S&P SmallCap 600 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings-change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P SmallCap 600 Index. The S&P SmallCap 600 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. The respective S&P SmallCap 600 Sector Indices are capitalization-weighted and comprised of S&P SmallCap 600 constituents representing a specific sector.  

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View from the Observation Deck

Today’s post seeks to investigate the impact of changes (real or expected) in U.S. policy rates on the country’s banking and financial sectors. The chart above plots the price-only returns of the S&P Banks GICS Level 2 Index, S&P Regional Banks Index, and S&P 500 Financials Index against the broader S&P 500 Index from 7/31/25 to 8/22/25. We changed the time frame covered by today’s post (from previous versions) to cover recent and more relevant changes in interest rate expectations. Please click here for our last post on this topic.

The federal funds target rate has been stagnant this year, unchanged from 4.50% where the Federal Reserve (“Fed”) set it back in December 2024.

Forecasting changes in Fed policy rates is notoriously difficult, especially during periods of economic volatility. That said, Jerome Powell’s comments at the Fed’s annual symposium in Jackson Hole on 8/22 have investors increasingly certain of a September rate cut. At the end of July, the federal funds rate futures market implied a 39.8% likelihood of a rate cut at the Fed’s next meeting in September. That figure surged to 81.3% in the wake of Powell’s commentary.

For a myriad of reasons, interest rate policy may have an outsized impact on financial firms.

Take the banking sector, for example. Many banks (especially smaller, regional ones) earn significant profit on the spread between interest paid to depositors and the (generally greater amount of) interest earned on loaned assets. As Fed policy rates decline, that spread can increase, leading to improved financial conditions for these banks. Notably, the S&P Regional Bank Index is the top performer among the Indices covered in today’s chart. This phenomenon may not always hold for larger, over-capitalized banks that hold excess reserves at the Fed, since a declining federal funds target rate often equates to decreasing profitability on those reserves. We believe this is reflected in the chart. While still positive over the time frame, the broader S&P 500 Banking Index was the worst performer among today’s set of observations.

Earnings estimates for the S&P 500 Financials Index improved substantially since our last post. 

On 8/22/25, analysts estimated that the S&P 500 Financials Index would see year-over-year (y-o-y) earnings growth of 7.42% in 2025, a substantial improvement from 3.34% on 6/20/25 (data from our last post on this topic).

The total returns for the four indices from 7/9/24 – 8/22/25 were as follows (note - the starting date for this metric goes back to 7/9/24, which coincides with our previous posts on this topic).

S&P 500 Banks GICS L2 Index: 37.59%
S&P Regional Banks Index: 36.93%
S&P 500 Financials Index: 30.34%
S&P 500 Index: 17.66%

Takeaway: As today’s chart reveals, each of the Indices we track saw prices increase in the wake of Powell’s comments last week. Regional banks fared the best, surging by 7.62% (price return) over the period, followed by the S&P 500 Financials Index at 2.22%. From our perspective, investors are likely discounting for a more accommodative Fed and continued normalization of the Treasury yield curve. As mentioned above, we expect declining short-term rates to usher in a period of increasing profitability for regional banks and financial institutions. Additionally, current-year earnings estimates for Financials have recovered since our last post, with the sector’s estimated earnings per share higher today than at the start of the year. As always, risks in the form of economic deterioration, protracted international wars, and the potential for restrictive lending standards remain. We will report back as developments warrant.

The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P 500 Financials Index is a capitalization-weighted index of companies in the S&P 500 Index that are classified as members of the GICS financials sector. The S&P 500 Banks Index is a capitalization-weighted index. The S&P Banks Select Industry Index comprises stocks in the S&P Total Market Index that are classified in the GICS Asset Management & Custody Banks, Diversified Banks, Regional Banks, Diversified Financial Services and Commercial & Residential Mortgage Finance sub-industries. The S&P Regional Banks Select Industry Index is comprised of stocks in the S&P Total Market Index that are classified in the GICS regional banks sub-industry.

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View from the Observation Deck 

Today’s post tracks quarterly changes in capital distributed to shareholders through dividend distributions and stock buybacks over a two-year period. Aside from several outliers, dividend distributions have steadily increased over today’s set of observations. Comparatively, share buybacks continue to account for a larger share of total capital disbursements but exhibit greater variance.

• Combined, stock dividends and share buybacks totaled a record $1.64 trillion (preliminary data) over the trailing 12-months ended in March 2025, up from $1.41 trillion over the same period ended in March 2024.
• Dividend distributions declined to $164.1 billion in Q1’25, down from the record of $167.6 billion in Q4’24, but up from $151.6 billion in Q1’24. In total, the companies that comprise the S&P 500 Index (“Index”) distributed a record $642.1 billion in dividend payments over the trailing 12-months ended March 2025.
• Stock buybacks increased to a quarterly record of $293.5 billion in Q1’25 (preliminary data), up from $243.2 billion in Q4’24. Buybacks totaled $999.2 billion over the trailing 12-months ended March 2025, up from $816.5 billion over the 12-months ended March 2024. By contrast, the Index’s stock buybacks totaled a record $1.005 trillion over the trailing 12-months ended June 2022.
• In Q1’25, the S&P 500 Index sectors that were most aggressive in repurchasing their stock were as follows (% of all stocks repurchased): Information Technology (27.3%); Financials (20.3%); and Communication Services (15.5%), according to data from S&P Dow Jones Indices.

Takeaway: Investors often view increases in dividend payouts and stock buybacks as signs of financial strength. Total dividend distributions and share repurchases increased to record levels again in Q1’25, signaling continued improvement in the financial performance of S&P 500 Index constituents. As many investors are likely aware, larger stock buybacks may have a tangible impact on a company’s earnings per share (EPS). Notably, 13.7% of companies reduced share counts used for EPS calculations by at least 4% year-over year in Q1’25, up from 12.0% in Q4’24, according to S&P Dow Jones Indices. The top 20 companies accounted for 48.4% of total buybacks in Q1’25, down from 53.2% in Q3’24. While the figure remains higher than the historical average (47.7%), the metric’s decline may reflect improving financial conditions across a larger share of the Index’s holdings. We will update this post with new information as it becomes available.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The 11 major sector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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View from the Observation Deck

Today's charts are intended to give investors a visual perspective on historical and estimated earnings performance for the S&P 500 Index (“LargeCap Index”), the S&P MidCap 400 Index (“MidCap Index”), and the S&P SmallCap 600 Index (“SmallCap Index”). The charts track each Index’s quarterly reported earnings per share (EPS) beginning in Q4’23 through Q2’25. They also include Bloomberg’s estimated EPS for Q3’25 and Q4’25.

As you can see, quarter-over-quarter EPS declined for each Index in Q1’24, Q2’24, and Q2’25.

That said, we do not find these periodic declines worrying for several reasons. Most notably, year-over-year (y-o-y) comparisons were positive for the LargeCap and MidCap Indices during each of those quarters. Additionally, annual EPS for the LargeCap Index are estimated to total a record $268.32 and $299.30 in 2025 and 2026, respectively, with MidCap and SmallCap companies recovering slightly more slowly (they are estimated to post record annualized EPS in 2026). Finally, our observations do not account for potential seasonality.

Estimated 2025 calendar year EPS for each Index were as follows (not in the charts): S&P 500 Index ($268.32); S&P MidCap 400 Index ($180.36); S&P SmallCap 600 Index ($85.11).

Year-over-year earnings growth rates implied by these estimates are as follows: S&P 500 Index (+12.52%); S&P MidCap 400 Index (+1.16%); S&P SmallCap 600 Index (+5.77%). Despite their estimated growth, annual EPS for the MidCap and SmallCap Indices remain below their all-time highs of $194.25 and $97.53, respectively, which were both set in 2022. The overall trend is positive, however, and may imply that analysts expect a favorable climate for small and mid-sized companies in the near-term.

Takeaway: We wrote about this year’s earnings estimate volatility in a post last week (click here), attributing favorable developments in U.S. trade policy and economic data to upwardly revised estimates for the LargeCap Index. Today’s publication provides an extended view into the earnings climate of the mid and small-cap segments of the market as well. We believe that corporate earnings drive the direction of stock prices over time, especially when the major indices are trading at or near record highs. As the data shows, EPS are expected to trend higher across each of these Indices over the next several quarters, with full year estimates reaching record-highs for Mid and Small-Caps in 2026. As always, these are estimates and are subject to change (and have changed since our last post). We will continue to report back as developments warrant.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The S&P 500 Equal Weighted Index is the equal-weight version of the S&P 500 Index. The 11 major sector indices are capitalization-weighted and comprised of S&P 500, S&P MidCap 400 and S&P SmallCap 600 constituents representing a specific sector. 

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View from the Observation Deck

We update this post on an ongoing basis to provide investors with insight regarding the earnings climate of the S&P 500 Index (“Index”). While quarterly earnings estimates are a useful indicator of a company’s financial performance, they are not guarantees. Equity analysts are continually adjusting these estimates as new information is obtained. As of 8/6/25, 404 of the 503 stocks that comprise the Index (80.3%) had reported Q2’25 earnings, according to data from S&P Dow Jones Indices.

FactSet reported that the Q2’25 blended, year-over-year (y-o-y) earnings growth rate for the Index stood at 11.8% as of 8/8/25.

Should this hold, it will mark the third consecutive quarter of double-digit earnings growth for the Index. 

The percentage of Index companies that beat earnings expectations in Q2’25 (77.2% as of 8/6/25) is above the 4-year average of 76.6%.

Keep in mind, the 4-year average in today’s chart reflects favorable comparisons to COVID-era earnings in 2020 and 2021. We expect the average will decline as those results are removed from our dataset.

The three sectors with the highest Q2’25 y-o-y earnings growth rates and their percentages were as follows (as of 8/8/25): Communication Services (45.8%); Information Technology (21.3%); and Financials (13.1%). For comparison, Consumer Staples, Materials, and Energy experienced y-o-y earnings growth rates of 0.4%, -3.7%, and -17.6%, respectively.

As of 8/8/25, the sectors with the highest Q2’25 earnings beat rates and their percentages were as follows: Information Technology (92%); Financials (87%), and Consumer Staples and Health Care (tied at 86%), according to FactSet’s Earnings Insight report. Materials had the lowest beat and miss rates at 52% and 48%, respectively.

Takeaway: At 77.2%, an above-average number of S&P 500 Index companies reported earnings that exceeded estimates in Q2’25 (data thru 8/6). We expect this phenomenon will persist as elevated observations resulting from favorable comparisons to COVID-era earnings fall off our trailing 4-year average. Moreover, calendar year earnings estimates hint at record observations in the years to come. FactSet reported that the Index’s bottom-up calendar-year earnings will total a record 267.48 and 302.53 in 2025 and 2026, representing y-o-y increases of 10.3% and 13.3%, respectively. For comparison, over the past 10 years the Index’s average y-o-y earnings growth rate was 9.2%. The earnings climate appears to be improving, with analysts estimating higher calendar year earnings today than in recent months. As we see it, expectations of lower interest rates and an improving economic climate may offer insight into this trend. FactSet revealed that the number of companies citing “recession” during their Q2’25 earnings calls declined by 87% from Q1’25. As always, these estimates are subject to change.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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View from the Observation Deck

Today’s post provides an update to 2025 and 2026 earnings and revenue growth rate estimates for the S&P 500 Index (“Index”) and each of its eleven sectors. The Index closed at 6,389.45 on 8/8/25, just shy of its all-time high of 6,389.77 (7/28/25), and up a staggering 28.75% (total return) from its most recent low of 4,982.77 (4/8/25). For comparison, from 1928-2024 (97 years) the Index posted an average annual total return of 9.71%.

Earnings growth rate estimates remain favorable, with observations for 2025 having increased since our last post.

On 8/8/25, earnings for the companies that comprise the Index were estimated to increase by 9.2% year-over-year (y-o-y) in 2025, up from 7.4% in our last post on this topic in May (click here). Just two sectors are estimated to see earnings decline y-o-y in 2025, down from three in our last post. The two sectors and their estimated y-o-y earnings decline were: Energy (-10.9%) and Consumer Staples (-1.6%). In 2026, however, earnings are estimated to increase for each of the Index’s 11 sectors.

Revenue growth rate estimates remain favorable as well. In fact, observations for both 2025 and 2026 increased since we last wrote about this topic.

As of 8/8/25, the Index’s 2025 estimated y-o-y revenue growth rate stood at 5.7%, up from 4.3% on 5/16/25. Ten of the Index’s eleven sectors reflect positive y-o-y revenue growth rate estimates in 2025, with four of them estimated to surpass 5.0%. Information Technology commands the highest estimated revenue growth rates at 13.1% and 11.1% in 2025 and 2026, respectively.

Takeaway: Earnings growth rate estimates have been volatile this year. When we first updated this topic in 2025 the Index’s 2025 y-o-y earnings growth rate stood at 12.4% (data from 1/24/25). As the year progressed, increasingly hostile tariff negotiations, escalating geopolitical tensions, and weakening U.S. economic data led analysts to issue downward adjustments to their estimates. By our next post, 2025 earnings growth rate estimates had come down significantly, and sat at 7.4% y-o-y (data from 5/16). It appears these pressures have diminished, allowing analysts latitude to increase their y-o-y earnings and revenue growth rate estimates to 9.2% and 5.7%, respectively, in 2025 (as of 8/8). Time will ultimately reveal the accuracy of these estimates, but we maintain that higher revenues could be the best catalyst for earnings growth, which in turn, may continue to drive equity prices higher.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The respective S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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View from the Observation Deck

For today’s post we thought it would be constructive to revisit an area of the market that we haven’t touched on in some time: homebuilders. Data from the U.S. Census Bureau revealed that housing starts increased by 4.6% to an annual rate of 1.321 million in June 2025, beating the consensus expected annual rate of 1.300 million. New building permits increased as well, rising to an annual rate of 1.397 million (compared to estimates of 1.387 million). Even so, homebuilder sentiment remains negative, with more builders saying current conditions are poor versus good. 

The S&P Homebuilders Select Index (Homebuilders Index) increased by 8.83% on a total return basis since the start of the third quarter (thru 8/5). For comparison, the S&P 500 Index increased by 1.61% (total return) over the same time frame.

Recent returns enjoyed by the Homebuilders Index mask persistent headwinds within the space. Single-family starts were down 10.0% year-over-year in June while completions plunged 14.7%, according to Brian Wesbury, Chief Economist at First Trust Portfolios, LP. A backlog of completed homes adds further stress to the subsector. Inventory of completed single-family homes currently stands at 119,000, its highest level since 2009.

Investors increasingly expect U.S. interest rates to decline in the coming months.

Last week, the Federal Reserve (“Fed”) decided to keep interest rates steady for the time being. The vote was not unanimous, however, with two committee members offering dissenting opinions regarding the decision. Many investors have taken this as a signal that rate cuts could return in September. As of 8/5/25, the federal funds rate futures market implied a 90.2% chance of an interest rate reduction at the Fed’s next meeting on 9/17/25, up from 39.8% just days prior on 7/31.

Interest rate policy can substantially impact homebuilder values. 

As many investors are aware, lower interest rates generally lead to increased affordability for home buyers. The weekly national average for a 30-year fixed-rate mortgage stood at 6.75% on 7/30/25, according to Bankrate’s latest lender survey, reflecting the metric’s lowest level in four weeks. Despite the decline, Bankrate noted that elevated interest rates have contributed meaningfully to a disappointing spring homebuying season, with home sales remaining unusually low at less than 4 million per year.

Takeaway: The Homebuilders Index has enjoyed a strong start to the third quarter, increasing by 8.83% (total return) from 6/30 through 8/5. We believe expectations regarding near-term interest rate policy may explain, in part, the subsector’s recent performance. That said, mortgage rates and prices remain elevated, pressuring would-be buyers. Data from the Federal Reserve Bank of St. Louis revealed that the median sales price of a U.S. home stood at $410,800 in Q2’25, up from $313,000 in Q1’19 (pre-pandemic). Shoppers are increasingly waiting on the sidelines, pushing completed single-family home inventory to near-term highs and resulting in lower-than-expected spring and summer sales. While nothing is certain, investors appear increasingly confident that interest rates will fall through year’s end. Stay tuned!

This table is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P Homebuilders Select Index comprises stocks from the S&P Total Market Index that are classified in the GICS Homebuilding sub-industry. 

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