Home Insights Equities Risk assets: Earnings and deregulatory tailwinds are creating a strong backdrop

Results from the third quarter earnings season have supported the ongoing U.S. corporate sector resilience, and forward estimates point to additional earnings growth next year. With a soft-landing narrative still in play, solid earnings growth, combined with the lifting of pre-election uncertainty and a likely deregulatory stance by the incoming administration, should create a strong backdrop for risk assets ahead.

Earnings season is wrapping up, and with over 90% of the S&P 500 done reporting third-quarter financials, the results look encouraging. Earnings are on track to grow 8.4% Y/Y this quarter, versus a pre-season forecast of 4.2%. There were solid contributions from most sectors, with revenue growth over a percentage point higher than estimated.

Despite lingering demand concerns, corporate guidance has also shifted more positively, with the share of companies issuing better earnings outlooks compared to previous analyst expectations rising to nearly the highest all year.

Indeed, estimates point to a continued earnings growth reacceleration through next year, with earnings forecasted to grow nearly 13% Y/Y in 2025, versus around 8% this year.

There are other reasons to be optimistic, too. The lifting of pre-election uncertainty will likely spur M&A and capex, and provide a lift to corporate sentiment. The policy agenda may also be an added tailwind, as the incoming Trump administration is likely to push for broad deregulation. There remains elevated uncertainty on actual implementation, but it appears that the bias of policy is nevertheless tilting more pro-growth now than before.

Inflation will still be a key variable to watch going forward, but both the soft-landing narrative still in play and U.S. economic growth momentum likely remaining very solid create a strong backdrop for risk assets ahead.

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