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What to Expect From the Q3 Reporting Season
Written by Thomas Hughes. Published 9/3/2025.
Key Points
- The Q3 earnings season will likely be much stronger than feared in early September.
- AI will continue to drive results, with strength seen in the broader variety of stocks.
- Consumer staples and discretionary stocks will also outperform their forecasts.
The Q2 earnings reporting season for the S&P 500 (NYSEARCA: SPY) has concluded with stronger-than-expected results, delivering roughly 12% year-over-year (YOY) earnings growth. Analysts anticipate even more robust gains in Q3.
As of early September, the consensus forecast calls for around 7.5% YOY earnings growth in Q3, but history suggests those estimates could be conservative. In Q2, the S&P 500 outpaced the consensus by nearly 700 basis points at the cycle's low point—well above the long-term average—despite tariff- and trade-related concerns.
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This wider-than-normal margin of surprise underscores the resilient earnings trend driving the S&P 500 and points to further upside before year-end.
Consumer Resilience Sets the Stage for Q3
While tariffs and trade tensions remain a headwind, Q2 demonstrated that the consumer is holding up better than feared. If that resilience persists—and no new tariffs are imposed—Q3's 7.5% earnings-growth estimate could quickly be revised toward 12% or even 15%, providing a fresh catalyst for the market. An optimistic Q4 outlook would only strengthen this uptrend.
Key drivers in Q2 included consumer spending, though estimates suggest a modest slowdown in Q3. Both the Consumer Staples Select Sector SPDR Fund (XLP) and Consumer Discretionary Select Sector SPDR Fund (XLY) are projected to report lower earnings than last year—setting the stage for potential upside surprises.
Recent data—such as unemployment claims and retail sales—underscore a healthy labor market and a durable consumer. In July, retail sales rose 0.5% month-over-month, 3.9% YOY, with a 30-basis-point upward revision to June's figures.
Technically, both sectors look constructive: XLY has rebounded and is on track to challenge new highs, while XLP's rising volume suggests growing bullish sentiment in what has been a rangebound staples market.
Tech and AI to Outperform in Q3
Q2 earnings from NVIDIA (NVDA), Snowflake (SNOW) and MongoDB (MDB) handily exceeded expectations, confirming that the AI-driven rally remains in full swing. Importantly, corporate spending is expanding beyond infrastructure into software and applications, foreshadowing a much larger opportunity ahead.
The Technology Select Sector SPDR Fund (XLK) is forecast to deliver nearly 20% YOY earnings growth in Q3—and those estimates are rising. Alongside NVIDIA, watch for strength from AMD, as well as firms focused on AI infrastructure, business services and automation.
XLK—weighted more than 15% to NVIDIA and nearly 30% with Microsoft (MSFT)—has rebounded strongly since April and remains in an uptrend. While a Q3 beat should sustain the rally, traders will watch for a pullback to support ahead of the late-October earnings from mega-caps like Microsoft, which could offer a buying opportunity.
FOMC Deliberations Pose Short-Term Risks
Among the market's potential stumbling blocks is the Federal Open Market Committee's rate path. With inflation still elevated and labor markets tight, the FOMC may delay or limit rate cuts compared to current market pricing. The best-case scenario would be a "one-and-done" rate cut later this year—absent a recession—providing only incremental relief, particularly in housing.
Overall, Q3's results should reinforce current uptrends, with consumer resilience and AI-driven tech leadership propelling the S&P 500 higher. Investors should monitor FOMC developments and any market pullbacks as tactical buying opportunities.
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