S&P 500 - Rally Winners. Will Rally Cont'd ?
US’s $S&P 500(.SPX)$ has been “on a tear” lately. (see below)
Last week alone, it achieved a record closing high every trading day of the week, Monday thru Friday.
It marked a perfect streak of 5 consecutive record closes, a feat last seen in November 2021. (see above)
Mixed Earnings !
About 1⁄3 of the way through Q2 2025 earnings season, the S&P 500 is reporting somewhat mixed results (as of 25 Jul 2025).
It is considered “mixed” because:
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On the one hand, the percentage of S&P 500 companies reporting positive earnings surprises is above average levels.
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On the other hand, the magnitude of earnings surprises is below average levels.
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On the one hand, the index is reporting higher earnings for Q2 today (a) relative to end of last week and (b) relative to end of the quarter.
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On the other hand, the index is still reporting its lowest YoY “earnings growth rate” since Q1 2024 (5.8%).
In addition, more sectors are reporting a YoY decline in earnings (6) than YoY growth in earnings (5).
Statistically, of the 167 companies that have reported actuals 2025 results:
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80% reported earnings per share (EPS) above estimates.
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It is better than the average over the past 5 years (78%) and past 10 years (75%).
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If 80% stays as the final number, it will be the highest percentage of companies beating estimates for a quarter since Q3 2023, when it was 81%.
On average, earnings are 6.1% above estimates, that is less than the 5-year average of 9.1% and the 10-year average of 6.9%.
To be clear, historical averages show results from all 500 companies, not just from the companies that have reported so far.
Thriving Sectors.
By Earnings Growth Rate.
During the past week, positive EPS surprises reported by companies in following sectors:
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Communication Services - $Communication Services Select Sector SPDR Fund(XLC)$
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Financials - $Financial Select Sector SPDR Fund(XLF)$
Since 30 Jun 2025, positive EPS surprises reported by companies in both sectors:
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Have been largest contributors to increase in overall earnings growth rate for the S&P 500, over this period.
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Have helped to partially offset downward revisions to EPS estimates for companies in the ailing Health Care sector ($Health Care Select Sector SPDR Fund(XLV)$).
Overall, the index is reporting higher earnings for the second quarter (in 21 Jul 2025 week) relative to — end of last week & end of the quarter.
Earnings Growth - Comparison.
As of 25 Jul 2025, the blended earnings growth rate for Q2 2025 is 6.4%; that is a combination of reported companies’ actuals and yet-to-report companies’ estimates.
Last week, the growth rate was 5.6% vs end of June 2025’s 4.9%.
Hypothetically, if 6.4% is the “final” actual growth rate for Q2 2025, it will be the lowest earnings growth rate reported by the S&P 500, since Q1 2024’s 5.8%.
Nevertheless, it will still be the 8th consecutive quarter of YoY earnings growth for the index.
5 of 11 sectors are reporting YoY growth, led by (1) Communication Services, (2) Information Technology, and (3) Financials.
On the other hand, 6 of 11 sectors are reporting YoY decline in earnings, led by Energy sector - $Energy Select Sector SPDR Fund(XLE)$.
H2 2025 Guidance & Valuation.
For H2 2025, analysts forecast earnings growth of:
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7.60% in Q3 2025.
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7.00% in Q4 2025.
Overall, calendar year 2025 earnings growth is expected to be 9.6%.
Forward 12-month price-to-earnings (P/E) ratio of S&P 500 is 22.4:
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This is above the 5-year average (19.9) and 10-year average (18.4).
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It also exceeds the forward P/E of 22.1, recorded at the end of Q2 2025.
My personal views: (mine only)
After reading the post, a lot of questions swirled in my mind:
(1) Does it mean now is not the time to load up on stocks from either Communication services OR Financial; given that they may be overvalued already ?
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Reason being by the time this post is published, stocks from XLC & XLF sectors would have already had runaway stock prices.
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Chasing high is not really a strategy, something that Mr Buffett would not recommend.
(2) Does it mean now is the time to load up on Energy stocks given its depressed performance, so far in 2025 ?
Reasons being:
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Market Self-Correction (Hotelling Model): Based on economic theory of “Supply & Demand”, low profits in the energy sector will cause firms to reduce investment and production, shrinking supply. This eventually raises prices and restores profitability, prompting new investment and sector recovery.
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Technological Shifts & Cost Reductions: Advancements make energy technology cheaper and more efficient over time, even during downturns. These ongoing improvements create new growth opportunities and help the sector recover.
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Policy Intervention & Recovery Programs: Governments often respond to sector downturns with targeted measures such as stimulating demand and innovation. These actions could help restore confidence and accelerate sector's rebound.
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Case in point - The US-EU trade deal inked on Sun, 27 Jul 2025, has EU’s commitment to buy $250 billion of US liquefied natural gas (LNG) a year for 3 years, totalling $750 billion, as it replaces Russian gas. The EU will also buy nuclear fuel from the US..
It is relatively “safe” to assume that the S&P 500 will continue to “rally” in the short term as more trade deals get inked on the run up to 01 Aug 2025 ? 4 days countdown have just begun…
Remember to check out my other posts. (See below). Help to Repost ok, Thanks.
Must Read: Click on below titles to access. Repost to share, Like as encouragement ok. Thanks.
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INTC : Road to recovery, foundry stock ? Mon, 28 July. Picked post.
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Time to sell Citibank & BofA, like BRK.B ? Mon, 28 July. Picked post.
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TSLA Q2 Earnings : Damages Caused by Elon ! Fri, 25 July. Picked post.
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Do you think it is better to wait for XLC and XLF to pullback before considering investing ?
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Do you think now is the time to invest in XLE (energy) stocks ?
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