The early stats for 3Q25 reporting season – strong on beats, still seeing deterioration on the rate of upward revisions
Reporting season is off to a strong start from the perspective of beat rates. In our latest update, 83% of S&P 500 companies were beating consensus on EPS while 85% were beating on sales. Both stats were up slightly relative to final levels in place for 2Q25.
Though fewer Russell 2000 companies have reported, trends on beat rates have been similarly strong. But we still continue to see downward pressure on the rate of upward EPS estimate revisions for the broader market indices. This is a gauge of earnings sentiment and is more of a forward-looking indicator than beat rates. This stat is now tracking at 51.9% for the S&P 500 and 46.8% for the Russell 2000.
Macro color from last week’s earnings calls
As has become our custom, our team read through last week’s earnings call transcripts for the S&P 500 companies that reported, looking for insights into the macro backdrop.
On the positive side some companies in a number of different industries noted demand trends had improved recently after weakness earlier in the fall or year, while others cited optimism around lower interest rates and deregulation tailwinds and greater certainty on tax policy and / or strong demand from certain end markets ranging from flying to AI. On the negative side, companies highlighted a soft housing market, weak hiring trends, elevated inventories from pre-buying ahead of tariffs, consumer pressures, softness in government-related demand, and the persistence of a “wait and see” mentality among some customers. Some companies noted they were keeping some caution in their outlooks while others displayed a more clearly optimistic tone.
What else jumps out
Inspired by questions from our Small Cap PM clients, we examined the relationship between ROE and forward P/E for the median stock in the major size indices as of September 2025. We found that today, the Large and Mid Cap indices are getting higher multiples than the Small Cap indices, but also carry higher ROEs.
