The Market’s Momentum Isn’t Sentiment. It’s Math.

• 63 S&P 500 Index member companies issued positive 2Q guidance.

• That’s above the 44.8 average based on data going back to 2018.

• Above average guidance tends to align with solid forward returns.

Occasionally, the market hands you a tell, and right now corporate guidance is flashing bright green…

Yesterday, we looked past the constant noise of the financial media to focus on what truly drives long-term market returns: forward earnings power. We discussed investing the road ahead. Right now, the structural shift driven by the artificial intelligence capital-expenditure cycle is boosting corporate margins and lifting the broader economy. Improving operating efficiencies means overall S&P 500 Index expectations need to move up.

Wall Street analysts are already adjusting to this reality, revising calendar-year 2027 earnings estimates from $358 to $398 since the start of the year. I noted that by applying a 20x fair-value multiple (five-year average) to those figures, the math points to a year-end S&P 500 target of 8,000, nearly 10% above current levels.

While diving into the data for that analysis, the chart above caught my eye. According to financial data provider FactSet, the number of S&P 500 member companies raising their financial guidance for the second quarter increased to 63 compared to 60 in the first quarter. In fact, corporate management teams are so confident in their momentum that positive guidance revisions just hit their highest level since the second quarter of 2021.

Naturally, I wanted to see how the stock market typically responds to similar environments in the past. Based on the historical data I surveyed, equities show a clear pattern: stocks tend to perform well both during and after these quarterly release cycles. This cluster of rising corporate guidance acts as a tailwind for a sustainable rally in the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

After compiling the data for the number of companies issuing positive forward guidance, I figured the best place to start was with the average. Based on the table, there are typically 44.8, or almost 10%, S&P 500 companies issuing positive forward guidance when they report results. Consequently, I used that as a dividing line for above- or below-average quarters.

One I had the marker established, I calculated how many times quarterly guidance has come in above the average based on data going back to 2018. In the following table I have the instances and the quarters listed…

My next move was to calculate the results for those quarters (first three months) as well as the 6-, 12-, and 24-month returns. Now given that the quarterly guidance is given for the quarter looking forward, that means the numbers will come out after that period is complete. So, the starting date for the performance measurement begins at the end of the quarter, just before the results are published. Based on what I found, the numbers are impressive…

The above table tracks S&P 500 performance on a price basis. As you can see, when forward guidance is above average, those quarterly reporting seasons tend to see the stock market rise by 4.6% on average. The numbers tend to improve in the out periods with the index average a 10.7% one-year and 14.3% two-year return. In addition, each window has a high success rate.

Taken together, the message from the data is unmistakable: when corporate America leans forward with above‑average guidance, the market doesn’t just drift higher, it tends to build durable momentum. The quarterly lift, the strong one‑year follow‑through, and the high success rates across each window all point to the same conclusion. We’re in an environment where earnings strength, management confidence, and historical precedent are aligned. That combination doesn’t guarantee outcomes, but it does give investors a powerful, evidence‑based foundation for staying constructive on the S&P 500 as this cycle continues to unfold.

Five Stories Moving the Market:

Technical talks between the U.S. and Iran are continuing, according to a U.S. official, following two days of clashes that threatened to shatter an already fragile ceasefire between the two nations – Bloomberg. (Why you should care – the U.S. is said to still be committed to finding a solution) 

Federal Reserve Chairman Kevin Warsh tapped a broad and ​intellectually diverse group of economists and former central bankers to oversee the five task forces he is establishing to review the ‌U.S. central bank's operations, covering technical issues like management of its balance sheet as well as forward-leaning ones like the impact of artificial intelligence – WSJ. (Why you should care – the collective experience of the group is likely to lead to more dynamic measurement of economic data)

The Federal Reserve bank of New ‌York’s Robert Perli reiterated that Treasury bill-buying aimed at managing market liquidity levels can go up or down as needed; he said asset purchases are not on a preset course and can be dialed up or down as market liquidity warrants – Reuters. (Why you should care – the statement implies the central bank remains committed to support financial markets and the economy whenever the support is deemed necessary)

Micron plans to increase its spending on new plants in the U.S. to $250 billion to help meet unprecedented demand for its memory chips fueled by the global artificial intelligence boom; the funds would add $50 billion to the company’s previously announced commitment of $200 billion – Bloomberg. (Why you should care – the spending increase should help to boost domestic economic growth)

Meta Platforms plans to start manufacturing an artificial intelligence chip in ‌September as part of its plan to boost overall computing power to 14 gigawatts next year; the plan is to use custom-built silicon to improve the AI that powers its Facebook and ​Instagram social media platforms – Reuters. (Why you should care – the plan points to increased capital expenditures moving forward)

Economic Calendar:

Earnings: DAL

New Zealand – Markets Closed

Germany – CPI for June (Final) (2 a.m.)

France – CPI for June (Final) (2:45 a.m.)

U.S. – IEA Monthly Report (5 a.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. - CFTC’s Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)