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(Bloomberg) — With uncertainty swirling around the outlook for inflation and interest rates, there’s been one dependable catalyst keeping Wall Street’s spirits lifted: Corporate America’s bottom line.

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US companies that beat analysts’ profit estimates are seeing unusually large jumps in their stocks soon after — a sign that the latest slew of earnings reports are delivering a dose of confidence to traders even as expected policies from President Donald Trump and the direction of the Federal Reserve cast doubt on the staying power of the equity-market rally.

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The stocks of S&P 500 Index members that have reported stronger-than-expected profits in the most recent quarter have outperformed the benchmark by an average of 1.5% within a day of the results, according to data compiled by Bloomberg Intelligence. 

Only those that account for about one-fifth of the S&P 500’s market capitalization have so far reported. But if the trend holds, it would mark the best post-earnings reaction since 2018, data compiled by Bloomberg Intelligence show.

“You can feel the market sigh in relief with each report that makes an upside case for the 2025 earnings environment,” said Keith Buchanan, senior portfolio manager at GLOBALT Investments.

Among those reaping the biggest rewards for strong readouts was Netflix Inc., which jumped almost 10% after posting the largest quarterly subscriber gain in its history. JPMorgan Chase & Co. and Goldman Sachs Group Inc. soared on strong figures, along with megabank peers, while Delta Air Lines Inc. shares climbed after the carrier’s quarterly profit topped analysts’ estimates and it provided a rosy outlook for 2025.

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The robust results are a much-needed driver for US stocks after the S&P 500 traded sideways through much of January as Wall Street dialed back expectations for interest-rate cuts this year and the possibility of a global trade war instigated by Trump clouded the outlook. That’s compounding angst about already stretched valuations, particularly for the tech stocks that have rallied on high hopes for artificial intelligence.

With results coming from some of those so-called Magnificent Seven stocks — Apple Inc., Meta Platforms Inc., Tesla Inc. and Microsoft Corp. — some of that worry has been building up as analysts curb earnings expectations for the quarters ahead. That mirrors the broader shift on Wall Street, where expected earnings momentum — a ratio of upward to downward per-share profit estimates for the S&P 500 over the next year — has been hovering in negative territory, according to BI data.

While it isn’t unusual to see analysts ratcheting down earnings forecasts at the start of earnings season, it could be an early sign of changing sentiment. The net-revision momentum for EPS growth over the next year declined for 15 consecutive weeks for the S&P 500, the longest stretch in since early 2023, according to BI.

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But the most recent quarter’s results, at least, have overshadowed concerns about what’s ahead. The slew of positive earnings — combined with less aggressive tariff talk during Trump’s first week than had been feared — helped send the S&P 500 to its second straight weekly gain.

“That’s one thing you can have confidence in when it’s harder to have confidence in where monetary policy is going to be, where inflation is going to be, and where the tariffs are going to be,” said Michael O’Rourke, chief investment strategist at JonesTrading.

The advance will be tested next week, which marks the busiest stretch of this earnings season, with companies that make up nearly 40% of the S&P 500’s market capitalization scheduled to report results.

That’s likely to open more of a gap between the winners and losers. The average S&P 500 stock has been moving roughly 5.5% in either direction, above the implied move of about 3.9% priced by options markets, according to data from Citigroup Inc. Going into the reporting season, strategists at Bank of America Corp. predicted US companies could see their biggest swings on record.

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“Notably, earnings-day volatility has not been simply a factor of higher macro volatility,” Vishal Vivek, a strategist on Citigroup’s trading desk, wrote in a note to clients. Instead, it’s a function of investors growing more discerning in “an increasingly attractive stock-picking environment.”

Top earnings stories:

US

• Boeing Strike, Defense Charges Hammer Fourth-Quarter Results (1)
• Meta Gains After Capex Plans, AI Infrastructure Stocks Rise
• American Express Profit Gets Boost From Holiday Shopping (2)
• Verizon Tops Wall Street Estimates With Mobile, Broadband Gains
• Twilio Jumps After Positive Outlook Spurs Upgrade: Street Wrap
• TI Falls as Outlook Points to Ongoing Weakness: Street Wrap
• Intuitive Surgical Falls as Margin Forecast Misses: Street Wrap
• NextEra Energy Rises on on Backed View, Nuclear Plant Effort (1)

EMEA

• Burberry Soars After Demand Pickup Lifts Hope of Luxury Comeback
• Ericsson Plunges as Media and Enterprise Losses Pile Up (1)
• Burberry Jumps as Sales Beat Boosts Revamp Hope: Street Wrap (1)
• ASML Unlikely to Cut 2025 Goal, JPMorgan Says Ahead of Earnings
• Givaudan Falls Amid Raw Material Inflation Worries: Street Wrap
• Signify Jumps as Buybacks Eclipse Mixed Results: Street Wrap

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Asia

• Texas Instruments Slides After Forecast Shows ‘Uneven Recovery’
• Tianqi Lithium Warns of 2024 Loss, Halts Australia Expansion (2)
• Battery Maker LG Energy Slashes Spending on EV Demand Risks
• Nidec Stock Down on Sluggish Profit Growth, 3Q Miss: Street Wrap
• Disco Drops After 4Q Guidance Misses Estimates: Street Wrap
• Shriram Finance 3Q Net Income Beats Estimates
• China Life Says Profit May More Than Double on Market Rally (1)
• IndiGo Profit Misses as Forex Loss Offsets Strong Travel Demand

Strategies

• Deutsche Bank Strategists See European Earnings Rising 4% in 4Q

For an overview of what’s expected from earnings next week:

• Deutsche Bank’s Good Omens, ASML Risks: EMEA Earnings Week Ahead
• Tesla, Apple and Meta to See Sales Slow: US Earnings Week Ahead
• India Automakers Get Festive Boost: Asia Earnings Week Ahead

This story was produced with the assistance of Bloomberg Automation

Story Link: Stocks Jump on Profit Wins by Most Since 2018: Earnings Watch

—With assistance from Matthew Griffin, Mary Schlangenstein, Damian Garde and Gerry Smith.

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