Episode summary
Earnings Season Was Surprisingly Surprising | Barron's Streetwise
Barron's Streetwise
· · Hosts: Jack Bary, Andrew Bary
Summary
Third-quarter earnings season came in stronger than expected, with analysts having cut S&P 500 growth forecasts from 13% at the start of the year to 8% by late September, only for results to track back toward roughly 13%. The host argued that earnings beats reached a four-year high in both frequency and size, suggesting tariff fears may have been overdone for now, though fourth-quarter margins could be more revealing once inventory buffers are gone.
The most important theme was the continued dominance of AI-driven capital spending. Microsoft, Amazon, Alphabet, and Meta Platforms could combine for $356 billion in capex this year, versus $94 billion for the rest of the S&P 500, and the host said that spending is still feeding the broader market. Investors rewarded Amazon’s AI-linked web services growth, but punished Meta after Mark Zuckerberg’s talk of super intelligence and front-loaded capacity spending. That split reinforced the idea that the market still likes AI investment, but only when it can see a path to returns.
The episode also highlighted how stock reactions can diverge sharply from earnings beats. Trex fell on rising competition, Newell Brands dropped after tariff-related price hikes hurt sales, Winnebago rose on successful pricing, and trucking names benefited from cost cuts. In the listener segment, the host endorsed shifting from individual stocks to cheap index funds and explained that sequence-of-returns risk matters most around retirement.
Key takeaways
- The host said third-quarter earnings growth is tracking back toward 13%, despite earlier cuts to 8% after tariff announcements.
- The host noted that big tech capex from Microsoft, Amazon, Alphabet, and Meta could reach $356 billion this year, up 56%.
- Amazon stock rose 10% on strong web services growth tied to AI spending, while Meta fell 11% after its spending plans failed to reassure investors.
- The host argued that index funds are a better fit for most investors than picking individual stocks, because even professionals usually fail to beat the market.
- The host said sequence-of-returns risk is highest right after retirement, when a market drop can force withdrawals at depressed prices.
Notable quotes
“earnings beats have hit a 4-year high. That's both in the prevalence and the size of the beats”
“We're all piled into index funds right now and our index funds are loaded up on big tech and the market is expensive”
“Microsoft, Amazon, Alphabet, and Meta Platforms. Those four companies alone could combine for capital expenditures of $356 billion this year, up 56%”
“The answer is yes, absolutely. It sounds like you're not thrilled with your own stock picking”
“The risk peaks at one particular moment in your life, and that's just when you've retired, and you're about to begin spending this money”
How the episode opens
Are we wobbling here, Alexis? Is that what's happening with the the stock market? I'm seeing the NASDAQ uh three pullbacks of more than 1% in the past six sessions.
That's at the time of this recording. Is that a wobble? It's not looking super steady.
Doesn't feel steady, but the earning season has been good. I mean, it's been good bordering on great. It's always pretty good, but it's been really good.
I'm thinking that buys us some time at least. I'll I'll run through some of the numbers and folks can decide for themselves. This is the Baron Street Wise podcast.
I'm Jack How. With me, our audio producer, Alexis Moore. Hey, Jack.
We are almost 90% of the way through earnings season. There's this thing that happens four times a year where America's publicly traded companies report their financial results to investors. Basically, I I compare it with having a dunk contest on lowered rims.
In this case, what happens is analysts reduce their estimates as we get closer and closer to reporting time and then companies announce their numbers and we all celebrate that they beat estimates. They were upside earning surprises galore. That's what usually happens.
That is happening this time, but to a greater extent than usual. If you go back to the beginning of this year, analysts were predicting 13% thirdarter earnings growth for companies in the S&P 500. That's excellent growth.
That was before the big uh tariff announcements. What was that? What did we call that again?
Independence Day in in uh they called it Liberation Day. Liberation Day. I don't know why I keep forgetting that.
It's such a it's such a description that draws the mind to tariffs. Okay, so we had the tariff announcements in spring and there were reciprocal tariffs and there were pauses and there were unpauses and analysts gradually reduced their growth estimates to the point where at the end of September, the end of the third quarter, the forecast was down to 8% growth from 13%.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- earnings season
- listener questions
- index funds
- sequence-of-returns risk
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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