Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, opened the door to the possibility of a rate cut, citing heightened downside risks to employment. This news was immediately reflected in the stock market, with the S&P 500 jumping nearly 104 points, achieving its biggest one-day gain since May. Powell noted that unemployment has remained stable throughout the year and sits at a historically low level of 4.2%. Additionally, Q2 experienced real GDP growth of 3% annually, primarily fueled by a decrease in imports and an increase in consumer spending.

Despite significant volatility in financial markets in the beginning part of this year, recent months have treated investors favorably. Since May, the stock market has reached a series of new highs, peaking at 6,501.86 on August 28^th. Ed Yardeni, market forecaster from Yardeni Research, who notably predicted this year’s growth in stock prices, also forecasts that the S&P 500 will reach 6,600 this year and 7,500 in 2026. In his recent interview on CNBC, Yardeni dismissed the concern that stocks are “expensive,” claiming that “earnings have been great,” and specifically citing that first and second quarter earnings have beat expectations “significantly.” For this reason, he believes that we will have a continuation of the current bull market, but it will be primarily led by earnings growth. This sentiment is further supported by data from Zacks Investment Research.

Zacks notes that, of the 472 companies that have reported Q2 earnings in the S&P 500, 80.3% reported a positive earnings surprise with 78.8% also beating revenue estimates. For the quarter, total earnings for these companies are up 11.2% from the same period last year. On an annual basis, five sectors, including retail, finance, aerospace, technology, and consumer discretionary are expected to produce double-digit earnings growth in Q2. Looking at the calendar year, forecasters from Zacks project total S&P 500 earnings for 2025 to grow 8.8% in 2025, 12.2% in 2026, and 13.9% in 2027, as depicted in the chart.

Accounting for 30% of the market capitalization of the S&P 500 and 23.9% of earnings, the Magnificent 7 still lead the way in terms of earnings growth. The group is projected to increase earnings by 16.5% in 2025 on 10.5% higher revenues, followed by earnings growth of 13% in 2026 and 16.5% in 2027.

At Worcester Advisors, we continue to recommend investment in well diversified portfolios of high-quality companies with consistent earnings growth as the safest method of achieving capital growth.

Your team,

Dave, Joe, Sangam, Jake, Anton, & Sandhya