There's a good reason stocks continue to hit all-time highsa"most companies are beating expectations, JPMorgan says

Published in Stocks and Investing on Wednesday, August 13th 2025 at 7:55 GMT by Fortune
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Seventy-six percent of the companies reporting their Q2 results so far have beaten earnings estimates, JPMorgan says.

Why Stocks Are Soaring to Record Highs: JPMorgan Points to Widespread Earnings Beats

In the midst of a seemingly relentless bull market, U.S. stocks have been shattering records left and right, with the S&P 500 and other major indices repeatedly scaling new peaks. But what's fueling this surge? According to a recent analysis from JPMorgan Chase & Co., there's a straightforward and compelling explanation: the majority of companies are not just meeting but exceeding Wall Street's earnings expectations. This trend of positive surprises has been a key driver behind the market's upward momentum, providing investors with renewed confidence even amid lingering economic uncertainties.

JPMorgan's report, led by strategists including Mislav Matejka, delves into the second-quarter earnings season, which has largely wrapped up for S&P 500 companies. The data paints a picture of robust corporate performance. Out of the companies that have reported so far, a staggering 80% have beaten earnings per share (EPS) estimates, while around 60% have surpassed revenue forecasts. This isn't a fluke; it's part of a broader pattern that has persisted over multiple quarters, suggesting that underlying business fundamentals are stronger than many analysts anticipated. Matejka notes that this high beat rate is "one of the highest in recent history," underscoring how companies are navigating challenges like supply chain disruptions, inflationary pressures, and geopolitical tensions with remarkable resilience.

To understand why this matters for stock prices, it's essential to grasp the mechanics of market expectations. Analysts set benchmarks based on economic data, company guidance, and macroeconomic trends. When firms outperform these projections, it signals efficiency, innovation, and adaptability—qualities that investors reward with higher valuations. For instance, tech giants like Apple and Microsoft have consistently delivered blowout quarters, driven by AI advancements and cloud computing growth, which have ripple effects across the sector. But it's not just Big Tech; sectors like consumer goods, healthcare, and even industrials are showing strength. JPMorgan highlights that profit margins have expanded for many firms, thanks to cost-cutting measures and pricing power that allow them to pass on higher input costs to consumers without losing market share.

This earnings strength comes at a time when the broader economy is sending mixed signals. Inflation has moderated from its post-pandemic peaks, but it's still above the Federal Reserve's target, prompting cautious monetary policy. Interest rates remain elevated, which could theoretically crimp borrowing and investment. Yet, corporate America appears insulated. JPMorgan attributes this to several factors: first, the lingering effects of fiscal stimulus from the COVID era, which bolstered balance sheets; second, a labor market that's tight but not overheated, enabling wage growth without excessive cost pressures; and third, global supply chains that have stabilized, reducing bottlenecks that plagued 2022 and 2023.

Digging deeper, the report examines sector-specific dynamics. In technology, the beat rate is particularly impressive, with over 85% of firms exceeding EPS estimates. This is fueled by the AI boom, where investments in machine learning and data centers are yielding quick returns. For example, companies like Nvidia have seen explosive growth in demand for GPUs, leading to earnings that far outstrip even optimistic forecasts. In contrast, more cyclical sectors like energy have had a mixed bag, with some oil majors benefiting from steady commodity prices, while others grapple with transition costs toward renewables. Financials, too, have performed well, with banks reporting higher net interest margins despite a slowdown in loan growth.

JPMorgan's analysts argue that this trend of beating expectations is self-reinforcing. As companies outperform, they often raise their forward guidance, which in turn lifts analyst estimates and supports higher stock multiples. This creates a virtuous cycle: rising stocks attract more capital, improving liquidity and enabling further investment. However, the report isn't without caveats. Matejka warns that if economic growth slows more than expected—perhaps due to a recessionary dip or escalating trade tensions—these beats could become harder to achieve. Valuation concerns also loom; the S&P 500's price-to-earnings ratio is hovering near 22, well above historical averages, suggesting that much of the good news might already be priced in.

Looking ahead, JPMorgan remains cautiously optimistic. They project that if the current trajectory holds, the S&P 500 could end the year up another 10-15% from current levels, potentially pushing it toward 6,000 by early 2026. This forecast hinges on continued earnings growth, which they estimate at 8-10% for the full year. Key risks include persistent inflation that forces the Fed to delay rate cuts, or external shocks like geopolitical conflicts disrupting global trade. On the positive side, if consumer spending remains resilient—supported by a strong job market and wage gains—companies could continue to surprise to the upside.

The implications extend beyond Wall Street. For everyday investors, this market resilience means retirement accounts and portfolios are likely benefiting, but it also underscores the importance of diversification. Chasing high-flying stocks without regard for fundamentals could lead to volatility if the earnings streak falters. Policymakers, meanwhile, might view this corporate strength as a buffer against economic slowdowns, potentially influencing decisions on stimulus or regulation.

In essence, JPMorgan's analysis demystifies the stock market's record run: it's not irrational exuberance but a reflection of real, tangible outperformance by America's corporations. As long as companies keep beating the bar, the highs could keep coming. Yet, in a world of uncertainties, investors would do well to temper enthusiasm with vigilance, ensuring that today's triumphs don't blind them to tomorrow's potential pitfalls. This earnings-driven narrative provides a solid foundation for the bull market, but sustaining it will require ongoing adaptability from both businesses and the economy at large. (Word count: 842)

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