Facts
- FactSet data for the S&P 500 show that after rising from 7.2% to 8.3% during the quarter, positive EPS surprises lifted the Q4 earnings growth rate for the S&P 500 to 11.9% y/y. The current pace of earnings growth suggests that Q4 2025 marks the fifth consecutive quarter of double-digit earnings growth.
- Earnings growth for S&P 500 companies has been systematically revised higher: from 7.2% (September 30), to 8.3% (December 31), and to 11.9% currently.
- Consensus expectations point to continued double-digit earnings growth over the next four quarters (Q1–Q4 2026: 11.7%–15.4% y/y).
- The RSI for US500 has pulled back to around 45, a level also observed near local lows on December 17, 2025 and January 20, 2026. The US500 index is trading only about 20 points below the EMA50.
Recommendation
Long position on US500 at market price
- Stop Loss: 6920
- Take Profit: 7030
Opinion
Recent declines in US500 have been relatively sharp, but fundamentals for U.S. equities remain solid. The U.S. economy is performing relatively well, with inflation remaining fairly low not only in CPI data but also in the increasingly monitored Truflation indicator. Donald Trump has stated that the newly appointed Fed Chair, Kevin Warsh, intends to cut interest rates, while the S&P 500 earnings season has so far been positive overall, even if market reactions to individual company results have been mixed.
At this stage, the market appears somewhat concerned about rising capital expenditures, but the reaction seems driven more by caution than by fully justified fears of actual losses on the multi-billion-dollar technology investments made by large corporations.
The largest selloff in software and IT stocks in many years should eventually trigger a buying response. Accelerating upward revisions to S&P 500 EPS in recent months are strengthening the fundamental backdrop and appear to limit the risk of a disconnect between equity prices and corporate results. Moreover, forecasts for the coming quarters suggest that earnings growth should accelerate from current levels, reinforcing the case for a sustained uptrend and supporting elevated valuation multiples.
In addition, during the three previous shallow pullbacks, US500 rebounded relatively quickly above the EMA50 (orange line). We therefore recommend opening a long position in US500 at market price, with a target of 7030 points (the January record highs) and a protective stop loss at 6920 points.
Source: xStation5
