Exploring earnings trends and investment themes: Insights from Jurrien Timmer - November 3, 2025

Earnings developments and valuation considerations

Earnings momentum has been a significant force behind recent market gains. Approximately 70% of companies in the S&P 500 have reported earnings, with the third quarter growth rate rising to around 14%, doubling earlier expectations of 7%. Impressively, 83% of companies have beaten estimates by an average of 5%. This broad-based earnings strength has allowed valuations to take a backseat, emphasizing corporate profitability as the primary market driver. Dollar estimates per share have increased, reflecting this positive trend, despite elevated valuation levels.

Navigating concentration risk and passive investment

Market gains have been heavily concentrated in a handful of mega-cap technology stocks, often referred to as the MAG7. This concentration presents a double-edged sword: while it has fueled returns during the bull market, it also introduces significant risk if market dynamics shift. Passive investors tracking broad indices benefit in bull markets but may face challenges if concentration risk materializes negatively. Active management strategies that adjust exposure and incorporate global diversification, particularly into non-U.S. developed markets with attractive valuations, can enhance portfolio resilience and mitigate these risks.

Artificial intelligence as a transformative investment theme

Artificial intelligence (AI) continues to be a dominant growth theme, with major companies like Amazon, Meta and Nvidia investing heavily in AI infrastructure. This surge in capital expenditure is described as a “gold rush,” with potential to drive productivity gains and economic growth globally. While the ultimate revenue models and applications remain uncertain, the AI boom is reshaping market valuations, especially for AI-related stocks. Investors should balance the compelling narrative and earnings support with caution about potential overinvestment and valuation excesses. The AI innovation cycle represents a structural shift with the potential to transform industries worldwide.

Understanding the secular bull market context

The current secular bull market, now about 16 years old, is characterized by sustained earnings growth and rapid technological change. It shares features with past long-term expansions, such as the post-World War II boom and the 1990s internet bubble but benefits today from productivity improvements and technological advancements. However, periods of high concentration and elevated valuations often precede market corrections. Recognizing the advanced stage of this bull market encourages investors to adopt a balanced approach that weighs growth opportunities against prudent risk management.

Fiscal policy and market liquidity dynamics

U.S. fiscal policy and debt management play a crucial role in market liquidity and bond yields. The Treasury General Account (TGA) balance fluctuates with debt issuance and repayment, influencing cash availability and bond market behavior. Despite uncertainties around debt ceiling negotiations and potential government shutdowns, current market calm reflects confidence in fiscal management. The Federal Reserve’s cautious monetary policy, including measured interest rate cuts and bond yields around 4.1%, continues to shape investor expectations. Understanding these fiscal and monetary dynamics is essential for anticipating trends in market liquidity, interest rates and their impact on fixed income and equity valuations.

Conclusion: strategic insights for investors