Investors’ worries about the Fed, inflation, AI and geopolitical uncertainties have done little to blunt the stock market’s positive momentum, with the major indexes at or near record levels.
This favorable market reality has led many to believe that underlying economic fundamentals are strong enough to sustain the rally. But there are others that cite various reasons to stay cautious, keeping alive questions about the market's next move.
I am adding to that debate in this piece by pointing out a source of support for the market that not only justifies existing gains, but actually argues for plenty of further upside in the days ahead.
Stocks need power to push higher, just as humans and machines do. For stocks, this 'power' comes from a variety of sources, but interest rates and corporate profits are the biggest sources.
The Fed’s Inflation Fight
The central bank’s decision on Wednesday to leave interest rates unchanged was no surprise for the market, as the alternative risked making the Fed a discussion point in the mid-term election debates. A rate hike in the December meeting is now effectively a certainty at this stage, with the market increasingly convinced of the Fed’s inflation-fighting bona fides.
The combination of the AI-focused capital spending boom and elevated energy prices as a result of the wars in the Middle East and Ukraine has complicated the Fed’s inflation fight. But the new Fed chief reiterated confidence in the tools at the central bank’s disposal to bring inflation to their target level.
It is hard to pinpoint precisely what drove the sharp rise in long-term treasury yields this summer, though the market’s inflation worries have to be part of the explanation. The other driver appears to be the U.S. Treasury literally getting a run for its money by bond market competition from pristine-credit hyperscalers needing to fund their AI-centric spending plans.
The AI capital spending boom is expected to remain with us for some time, as recent quarterly results from Alphabet, Microsoft, Meta and others reaffirm. So, the pullback in long-term treasury yields in recent weeks can justifiably be interpreted as the Fed reestablishing its inflation-fighting credentials.
I don’t want to come across as making light of tightening Fed policy for the stock market. It is a big deal, particularly for parts of the economy that are relatively more rate sensitive like housing, autos, lower income households and small, high-growth companies with minimal current profitability. That said, the stock market is much more than these parts of the economy.
This brings us to the second force we mentioned earlier that powers stocks higher – corporate earnings.
Continued . . .
------------------------------------------------------------------------------------------------------
5 Stocks Set to Double: Sunday Deadline
There's still time to get in on our just-released 5 Stocks Set to Double Special Report. Each pick is the single favorite of a Zacks expert with the best chance to crush the market and gain +100% and more in the months ahead:
Stock #1: Instrument-Maker Addresses One of AI's Biggest Constraints
Stock #2: Data Center Stock on the Rebound with New NVIDIA Deal
Stock #3: Little-Known Healthcare Name Hits Major Inflection Point
Stock #4: Tech Ecosystem Picks Up Tailwinds in an Emerging Market
Stock #5: Internet Company Has First Profitable Quarter on AI Opportunity
While we can’t guarantee future success, previous editions of this report have racked up gains of +208.8%, +214.0%, and even +468.8%.¹
Deadline to download the new report is midnight Sunday, November 1.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
The Market’s Earnings Power
Corporate earnings have been very strong in recent quarters and the ongoing 2026 Q3 earnings season is reinforcing this favorable backdrop.
With Q3 results from more than half of S&P 500 members already out, earnings growth is on track to be in double-digits for the 8th quarter in row. Importantly, the Q3 earnings growth momentum is very broad-based, with 15 of the 16 Zacks sectors on track to enjoy positive growth.
Notwithstanding profit warnings from a few prominent companies, most companies are providing favorable and reassuring outlooks for their businesses, despite the many well-known headwinds. This is not only helping further improve the earnings outlook for coming periods, but also providing positive read-through about the economy.
The earnings set up for the market hasn’t been this good in a long time.
Growth is strong and broad-based, not dependent on one or just a few sectors. Even more important for the market is an improving earnings outlook, with estimates stable or steadily going up. And that’s exactly what we have at present.
We make the following two points in support of this view, which doesn't get sufficient appreciation in the market at present.
First: The revisions trend remains positive, a trend that has been in place for about a year now.
What this forward-looking earnings measure means is that the earnings growth pace for the coming periods is steadily going up. We are seeing this for 2026 Q4 as well as for full-year 2027, a replay of what we have been seeing in the last few quarters.
For 2026 Q4, the expectation currently is that S&P 500 earnings will increase by +28.5% from the same period last year on +12.5% higher revenues. Please note that the current +28.5% Q4 earnings growth rate is up from +26.6% at the start of October. Estimates for full-year 2027 are similarly going up.
Second: The above referenced favorable revisions trend was originally concentrated in the Tech sector and later on in the Energy sector. But what is notable for Q4 is the steady broadening of the sectors participating in the positive revisions trend.
Since the start of October when Q4 got underway, estimates for the period have increased for 7 of the 16 sectors. The Energy and Tech sectors continue to enjoy positive estimate revisions, but have been joined by the Finance, Basic Materials, Industrials, Conglomerates and Aerospace sectors.
We are seeing a similar broadening revisions trend at play for full-year 2027 estimates as well. Given this backdrop, there is no fundamental reason for stocks to lose ground as long as interest rates remain stable and earnings estimates maintain their current trend.
Putting It All Together
In the ongoing Q3 earnings season, companies are not only coming out with impressive results, but also providing positive guidance for the current period and beyond even as they explain the cost pressures and supply-chain challenges.
Current estimates for next year represent strong earnings growth, but we remain very confident that the growth pace should continue to go up as a result of favorable estimate revisions. In fact, there is a strong likelihood that the outlook for economic and earnings growth will turn out to be a lot stronger than currently reflected in consensus estimates. Importantly, there is simply no signs of the doom-and-gloom scenario that some in the market are afraid of.
The stock market’s positive momentum is grounded in the fundamental reality of an improving earnings outlook and an interest rate environment. While there are reasonable concerns about the interest rate backdrop given the Fed’s current posture, we see no reasons to fear an unstable interest rate regime.
All in all, an environment of stable earnings and interest rates is a market-friendly environment.
How Can Investors Capitalize?
You can take advantage by building positions in great stocks with solid fundamentals and strong earnings growth trends.
That's why I'm inviting you to download our just-released Special Report, 5 Stocks Set to Double. A Zacks expert handpicked each stock as their personal favorite to have the best chance of gaining +100% and more in the months ahead:
Stock #1: High-Margin Subscription SaaS Makes Life Easier for 100K+ Customers
Stock #2: Digital Platform Building a Contract-Backed Moat
Stock #3: Overlooked Tech Company Transforming Its Business
Stock #4: Financial Firm Capitalizing on Massive Cultural Shift
Stock #5: Behind-the-Scenes Partner of Multiple Tech Giants
While we can’t guarantee future success, previous editions of this report have racked up gains of +208.8%, +214.0%, and even +468.8%.¹
Your total cost to see all five new tickers is only $1, and there's no obligation to spend a cent more.
Plus, that same dollar gives you full 30-day access to Zacks Investor Collection. This includes real-time buy and sell recommendations and expert market insights from all of Zacks' private long-term portfolio services.
Please note, your opportunity to download our 5 Stocks Set to Double Special Report for $1 ends at midnight on Sunday, November 1.
See our 5 Stocks Set to Double now for $1 >>
Sheraz
Sheraz Mian serves as the Director of Research and manages the entire research department. He also manages the Zacks Focus List and Zacks Top 10 Stocks portfolios.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.
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Why the Stock Rally Has Legs: The Unstoppable Earnings Engine Behind Record Highs
Investors’ worries about the Fed, inflation, AI and geopolitical uncertainties have done little to blunt the stock market’s positive momentum, with the major indexes at or near record levels.
This favorable market reality has led many to believe that underlying economic fundamentals are strong enough to sustain the rally. But there are others that cite various reasons to stay cautious, keeping alive questions about the market's next move.
I am adding to that debate in this piece by pointing out a source of support for the market that not only justifies existing gains, but actually argues for plenty of further upside in the days ahead.
Stocks need power to push higher, just as humans and machines do. For stocks, this 'power' comes from a variety of sources, but interest rates and corporate profits are the biggest sources.
The Fed’s Inflation Fight
The central bank’s decision on Wednesday to leave interest rates unchanged was no surprise for the market, as the alternative risked making the Fed a discussion point in the mid-term election debates. A rate hike in the December meeting is now effectively a certainty at this stage, with the market increasingly convinced of the Fed’s inflation-fighting bona fides.
The combination of the AI-focused capital spending boom and elevated energy prices as a result of the wars in the Middle East and Ukraine has complicated the Fed’s inflation fight. But the new Fed chief reiterated confidence in the tools at the central bank’s disposal to bring inflation to their target level.
It is hard to pinpoint precisely what drove the sharp rise in long-term treasury yields this summer, though the market’s inflation worries have to be part of the explanation. The other driver appears to be the U.S. Treasury literally getting a run for its money by bond market competition from pristine-credit hyperscalers needing to fund their AI-centric spending plans.
The AI capital spending boom is expected to remain with us for some time, as recent quarterly results from Alphabet, Microsoft, Meta and others reaffirm. So, the pullback in long-term treasury yields in recent weeks can justifiably be interpreted as the Fed reestablishing its inflation-fighting credentials.
I don’t want to come across as making light of tightening Fed policy for the stock market. It is a big deal, particularly for parts of the economy that are relatively more rate sensitive like housing, autos, lower income households and small, high-growth companies with minimal current profitability. That said, the stock market is much more than these parts of the economy.
This brings us to the second force we mentioned earlier that powers stocks higher – corporate earnings.
Continued . . .
------------------------------------------------------------------------------------------------------
5 Stocks Set to Double: Sunday Deadline
There's still time to get in on our just-released 5 Stocks Set to Double Special Report. Each pick is the single favorite of a Zacks expert with the best chance to crush the market and gain +100% and more in the months ahead:
Stock #1: Instrument-Maker Addresses One of AI's Biggest Constraints
Stock #2: Data Center Stock on the Rebound with New NVIDIA Deal
Stock #3: Little-Known Healthcare Name Hits Major Inflection Point
Stock #4: Tech Ecosystem Picks Up Tailwinds in an Emerging Market
Stock #5: Internet Company Has First Profitable Quarter on AI Opportunity
While we can’t guarantee future success, previous editions of this report have racked up gains of +208.8%, +214.0%, and even +468.8%.¹
Deadline to download the new report is midnight Sunday, November 1.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
The Market’s Earnings Power
Corporate earnings have been very strong in recent quarters and the ongoing 2026 Q3 earnings season is reinforcing this favorable backdrop.
With Q3 results from more than half of S&P 500 members already out, earnings growth is on track to be in double-digits for the 8th quarter in row. Importantly, the Q3 earnings growth momentum is very broad-based, with 15 of the 16 Zacks sectors on track to enjoy positive growth.
Notwithstanding profit warnings from a few prominent companies, most companies are providing favorable and reassuring outlooks for their businesses, despite the many well-known headwinds. This is not only helping further improve the earnings outlook for coming periods, but also providing positive read-through about the economy.
The earnings set up for the market hasn’t been this good in a long time.
Growth is strong and broad-based, not dependent on one or just a few sectors. Even more important for the market is an improving earnings outlook, with estimates stable or steadily going up. And that’s exactly what we have at present.
We make the following two points in support of this view, which doesn't get sufficient appreciation in the market at present.
First: The revisions trend remains positive, a trend that has been in place for about a year now.
What this forward-looking earnings measure means is that the earnings growth pace for the coming periods is steadily going up. We are seeing this for 2026 Q4 as well as for full-year 2027, a replay of what we have been seeing in the last few quarters.
For 2026 Q4, the expectation currently is that S&P 500 earnings will increase by +28.5% from the same period last year on +12.5% higher revenues. Please note that the current +28.5% Q4 earnings growth rate is up from +26.6% at the start of October. Estimates for full-year 2027 are similarly going up.
Second: The above referenced favorable revisions trend was originally concentrated in the Tech sector and later on in the Energy sector. But what is notable for Q4 is the steady broadening of the sectors participating in the positive revisions trend.
Since the start of October when Q4 got underway, estimates for the period have increased for 7 of the 16 sectors. The Energy and Tech sectors continue to enjoy positive estimate revisions, but have been joined by the Finance, Basic Materials, Industrials, Conglomerates and Aerospace sectors.
We are seeing a similar broadening revisions trend at play for full-year 2027 estimates as well. Given this backdrop, there is no fundamental reason for stocks to lose ground as long as interest rates remain stable and earnings estimates maintain their current trend.
Putting It All Together
In the ongoing Q3 earnings season, companies are not only coming out with impressive results, but also providing positive guidance for the current period and beyond even as they explain the cost pressures and supply-chain challenges.
Current estimates for next year represent strong earnings growth, but we remain very confident that the growth pace should continue to go up as a result of favorable estimate revisions. In fact, there is a strong likelihood that the outlook for economic and earnings growth will turn out to be a lot stronger than currently reflected in consensus estimates. Importantly, there is simply no signs of the doom-and-gloom scenario that some in the market are afraid of.
The stock market’s positive momentum is grounded in the fundamental reality of an improving earnings outlook and an interest rate environment. While there are reasonable concerns about the interest rate backdrop given the Fed’s current posture, we see no reasons to fear an unstable interest rate regime.
All in all, an environment of stable earnings and interest rates is a market-friendly environment.
How Can Investors Capitalize?
You can take advantage by building positions in great stocks with solid fundamentals and strong earnings growth trends.
That's why I'm inviting you to download our just-released Special Report, 5 Stocks Set to Double. A Zacks expert handpicked each stock as their personal favorite to have the best chance of gaining +100% and more in the months ahead:
Stock #1: High-Margin Subscription SaaS Makes Life Easier for 100K+ Customers
Stock #2: Digital Platform Building a Contract-Backed Moat
Stock #3: Overlooked Tech Company Transforming Its Business
Stock #4: Financial Firm Capitalizing on Massive Cultural Shift
Stock #5: Behind-the-Scenes Partner of Multiple Tech Giants
While we can’t guarantee future success, previous editions of this report have racked up gains of +208.8%, +214.0%, and even +468.8%.¹
Your total cost to see all five new tickers is only $1, and there's no obligation to spend a cent more.
Plus, that same dollar gives you full 30-day access to Zacks Investor Collection. This includes real-time buy and sell recommendations and expert market insights from all of Zacks' private long-term portfolio services.
Please note, your opportunity to download our 5 Stocks Set to Double Special Report for $1 ends at midnight on Sunday, November 1.
See our 5 Stocks Set to Double now for $1 >>
Sheraz
Sheraz Mian serves as the Director of Research and manages the entire research department. He also manages the Zacks Focus List and Zacks Top 10 Stocks portfolios.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.