U.S. corporate earnings growth expectations continue to cool, analysts warn high-valuation U.S. stocks have limited margin for error.

On October 13, data compiled by Bank of America showed that despite strong Q3 earnings expectations for the S&P 500, earnings growth is projected to decelerate in 10 of the 11 sectors compared to the prior quarter. Aggregated industry research data indicates that analysts expect the earnings growth rate of S&P 500 components to slow from 25% in Q3 2026 and 28% in Q4 2026 to 18% in H1 2027, suggesting a slight weakening in the overall earnings outlook ahead.

Slowing earnings growth expectations alone are insufficient to halt the stock market rally. However, as US equities approach historic highs and investors increasingly worry that inflation proves more persistent than anticipated, US corporations must deliver robust earnings to drive the market to new heights. "We are seeing early signs that earnings growth momentum may be peaking. With the bar for earnings growth expectations set so high, even a slight miss could trigger a sharp market reaction," said Luca Paolini, Chief Strategist at Pictet Asset Management. (Jin10)