Back to basics

   By Guest Blogger Ryan Lewenza

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With the U.S. mid-term elections now behind us, investors will likely shift their attention back to what ultimately matters most: economic fundamentals and corporate earnings. From our lens, both continue to look quite constructive.

Starting with the U.S. economy, we recently received the first estimate for third-quarter GDP, which showed growth of an impressive 3.4%. Strong consumer spending and business investment, particularly related to the ongoing AI infrastructure buildout, continued to power the economy higher during the quarter.

For a large, developed economy like the United States, GDP growth of roughly 3% is typically considered quite healthy. So far this year, the U.S. economy has averaged 2.7% quarterly growth, not far from that mark. Looking ahead, fourth-quarter growth is expected to remain above 3%, indicating the U.S. economy continues to show remarkable resilience and few signs of a meaningful slowdown.

Several factors continue to support the outlook. The labour market remains healthy, with the unemployment rate holding in the low-4% range (compared to the mid-6% range in Canada).

Consumer spending has remained resilient, supported by both the strong labour market and the wealth effect, as rising stock markets and portfolio values bolster confidence and spending power. At the same time, continued investment in AI infrastructure remains an important engine of growth for the broader economy.

One risk we are monitoring closely is the ongoing conflict between the U.S. and Iran. Sustained upward pressure on oil prices could lead to higher inflation, potentially forcing the Federal Reserve to further hike interest rates. While this remains an important risk factor, we believe the current economic backdrop remains supportive, and we continue to maintain a constructive outlook on the U.S. economy.

U.S. economy grew an impressive 3.4% in the third quarter

Source: Bloomberg, Turner Investments

Moving on to corporate earnings, the picture looks even better. We’re nearing the end of the third-quarter earnings season, and it was another exceptionally strong quarter for U.S. corporations.

When analyzing quarterly earnings for the S&P 500, there are a few key metrics we focus on.

First is the percentage of companies that beat analyst expectations, commonly referred to as the “beat rate.” This quarter, 84% of S&P 500 companies reported earnings above analyst estimates, well above the five-year average of 78%. On average, companies are delivering earnings that are 2.7% ahead of consensus forecasts.

Second, overall S&P 500 earnings grew an impressive 31% year-over-year (yoy) in the third quarter. This marks the third consecutive quarter of earnings growth above 25% and the eighth straight quarter of double-digit earnings growth. To put that into perspective, I had to go all the way back to 2010-2011 to find a period when earnings growth was this consistently strong.

Importantly, this isn’t just a story about a handful of mega-cap technology companies. All eleven sectors of the S&P 500 are reporting positive yoy earnings growth, while seven of the eleven sectors are delivering double-digit gains. The strongest growth is coming from Energy, Information Technology, and Materials, with earnings rising 150%, 69%, and 29%, respectively.

S&P 500 sector earnings growth rates for Q3

Source: Factset

We also track net profit margins, which measure how much of every dollar of revenue companies keep as profit after all expenses. That figure came in at 14.9% in the third quarter, up from 13% a year ago and comfortably above the five-year average of 12.6%.

Perhaps most impressive is that despite the S&P 500 rising just 8% this year, earnings have increased by more than 30%. As a result, valuation multiples have actually contracted, with the market’s P/E ratio falling from roughly 26x at the start of the year to 20x today. So, US stocks are now more attractively valued today than they were at the start of the year, due to the massive profits this year.

Looking ahead, analysts expect S&P 500 earnings to grow another 28% in the fourth quarter. If that proves correct, the strong earnings environment that has supported the market over the past two years should remain firmly in place.

Taken together, the data points to a corporate earnings environment that remains exceptionally healthy and continues to provide a strong fundamental backdrop for equity markets.

So, from our perspective, both the U.S. economy and corporate America, remain in growth mode, which could drive more upside in stock prices in the coming months.

S&P 500 earnings and price trends since Dec 31

Source: Factset

S&P 500 P/E ratio has declined making US stocks more attractively valued

Source: Bloomberg, Turner Investments

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2026/11/14/back-to-basics-2/