When Guidance Rises, Stocks Follow

Editor’s Note: This week brings another key catalyst for investors. Market skeptics have been increasingly questioning artificial intelligence spending, and whether the demand behind it can hold up. We’ll get our first real look at the answer this week, when Meta and SpaceX report third-quarter results.

If recent guidance from S&P 500 management teams is any indication, those results should be solid. And based on the historical analysis I published a few weeks ago, that trend should support a steady rally in stocks from here. I’ve enclosed it below...

Management Confidence Is Sending a Signal

• 72 S&P 500 Index member companies issued positive 3Q earnings 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 for 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 $417 since the start of the year. If we apply a 20x fair-value multiple (five-year average) to those figures, the math points to a year-end S&P 500 target of 8,340, nearly 9% 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 third quarter increased to 72 compared to 63 in the second quarter. In fact, corporate management teams are so confident in their momentum that positive guidance revisions just made a new high.

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 should act as a tailwind for a steady 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 45, 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.

Once 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 4.4% on average. Further out, the index average improves by 11.3% after a one-year period, and by 17.1% after a two-year period. 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:

The U.S. said over the weekend that its forces helped escort more than 100 million barrels of oil through the Strait of Hormuz over the previous week; Admiral Brad Cooper said about 400 vessels passed through the strait over the least seven days – Bloomberg. (Why you should care – the details go against the current media narrative that Iran is inhibiting safe passage)

Rapidly improving artificial intelligence capabilities will ​bring far faster change across all fields, according to Anthropic co-founder Jack Clark; he noted that one of the company's internal models ‌forecasting that under certain conditions it could increase US economic output by almost 50% by 2030 – Reuters. (Why you should care – Anthropic’s models suggest U.S. GDP could grow to $44 trillion by 2030 compared to $30 trillion today)

Protests in several cities descended into clashes between police and demonstrators, sparking some of France’s worst street violence in years, with looting and landmarks set on fire; French President Emmanuel Macron called for order to be restored – Bloomberg. (Why you should care – the unrest comes days before Tuesday’s vote on Prime Minister Sébastien Lecornu’s 2027 budget, and a failed vote could push French bond yields, already at their highest since 2002, even higher and spill over into broader European markets)

Russian President Vladimir Putin has proposed meeting next month with U.S. President Donald Trump and Chinese leader Xi Jinping to talk about Ukraine in an attempt to negotiate an end to the four-year conflict that would favor Moscow – WSJ. (Why you should care – an end to the conflict with Ukraine could lift sanctions, freeing up vast commodity supplies for sale on the open market)

Federal Reserve Chairman Kevin Warsh said the U.S. central bank made it very clear that policymakers would deliver price stability, having removed ​a dose of accommodation about a month ago; Warsh also gave no indication about whether he feels more interest-rate hikes will be needed, or when – Reuters. (Why you should care – Warsh’s silence on further hikes points to the Fed holding rates steady at its October 27-28 meeting, which could ease upward pressure on Treasury yields)

Economic Calendar:

Earnings: FITB, STLD, WRB

China - House Prices for September (Sunday)

China - GDP for Q3 (Sunday)

China - Industrial Production, Retail Sales for September (Sunday)

ECB's Elderson (Executive Board) Speaks (2 a.m.)

Germany - Bundesbank Monthly Report (6 a.m.)

Canada - CPI for September (8:30 a.m.)

U.S. - NAHB Housing Market Index for October (10 a.m.)

Treasury Auctions $95 Billion in 13-Week Bills (11:30 a.m.)

Treasury Auctions $82 Billion in 26-Week Bills (11:30 a.m.)

BoC Business Outlook Survey (11:30 a.m.)

China - Loan Prime Rate Decision for October (9 p.m.)