The S&P 500 closed at 7,811.54 last week, within striking distance of its all-time closing high of 7,818.93 set on October 7. 

After an intraday push to 7,844.52, the index pulled back modestly as traders digested a mixed batch of macro data ahead of a critical earnings season. The question now is whether corporate profits can provide the fuel for a decisive break into new-record territory.

Caelora Group reviews the third-quarter earnings outlook, examines the sectors most likely to outperform and assesses the index’s technical positioning as large-cap bank results begin to roll in this week.

Guidance Breadth Signals Confidence

Of 116 companies that issued third-quarter EPS guidance, 72 provided positive outlooks, a rate of 62% that sits well above the five-year average of 40% and the ten-year average of 41%. 

Historically, positive guidance breadth at this level has corresponded with above-consensus aggregate earnings results when reports are published.

The outlook beyond Q3 remains constructive. FactSet projects fourth-quarter earnings growth of 27.6% and full-year 2026 growth of 32.4%. 

These figures embed expectations of continued margin expansion, driven by cost discipline, pricing power in the technology sector and an improving energy revenue mix.

Valuation Offers Relative Comfort

The forward 12-month price-to-earnings ratio stands at 19.0x, below the five-year average of 19.8x and marginally under the ten-year average of 19.1x. It has also compressed from 20.4x at the end of June, meaning that earnings growth has outpaced the market’s price advance over the past three months.

This does not make equities cheap in absolute terms. But relative to its own history and relative to the current earnings trajectory, the index is not stretched. 

For context, the forward P/E peaked above 23x in early 2021 and above 21x in late 2024, both periods that preceded significant multiple compression. The current level suggests that the market is pricing in growth rather than speculating on it.

Technical Levels at Record Territory

The daily chart shows the S&P 500 trading above its 50-day SMA at 7,620 and well clear of the 100-day SMA near 7,380. The 14-day RSI sits at 58, leaving ample room for further upside before the index enters overbought territory.

Immediate resistance is the intraday record at 7,844.52. A decisive close above that level would establish a new all-time high and set up a measured move toward the 8,000 psychological milestone, which aligns with the median Wall Street year-end target for the index.

Support rests at the 50-day SMA at 7,620. Consecutive closes below that line would, according to Fairlead Strategies’ Katie Stockton, call the October breakout into question. Deeper support sits at the 100-day SMA near 7,380 and the July lows around 7,237.

Risks to Monitor

Not everything favours the bulls. The ten-year Treasury yield at 5.24% remains a headwind for equity valuations, particularly for rate-sensitive sectors such as real estate and utilities. 

The U.S. government shutdown has delayed critical employment and inflation data, leaving the market to price the Fed’s October 27 to 28 meeting with incomplete information.

Geopolitical risk also warrants close attention. Energy prices have surged on Middle East supply disruptions, and further escalation could push input costs higher, squeezing the very margins that underpin the earnings growth story. 

The interplay between oil prices and corporate profitability will be a recurring theme throughout the reporting season.

Breadth remains a point of contention. While the cap-weighted index trades near its record, the equal-weighted S&P 500 sits approximately 6% below its own high, reflecting continued concentration in mega-cap technology names. 

The ten largest constituents account for roughly 37% of the index’s total market capitalisation. A broadening of earnings growth into cyclical and value sectors would address this divergence and provide a healthier foundation for further index-level gains.

Credit markets are sending supportive signals. Investment-grade spreads have tightened to 88 basis points, their narrowest level since February, and high-yield spreads at 315 basis points suggest that fixed-income investors see limited near-term recession risk. 

When credit and equity markets align in their assessment of corporate health, the backdrop for sustained equity gains tends to be favourable.

For now, the earnings backdrop provides a strong foundation. The third-quarter reporting season will test whether the market’s record-level positioning is justified by the numbers on the income statement, or whether expectations have run ahead of reality. 

The results from major banks this week will set the tone, with technology earnings in the following weeks likely to determine whether the index closes 2026 at or above current levels.