BIG NUMBER | 0% | It’s All About The Earnings

The stock market’s recent string of new highs has investors wondering what comes next.

No one knows with certainty, of course. But as third-quarter corporate earnings results begin trickling in this week, we think it’s important to highlight a key fact: A main reason stock prices are higher this year is because companies keep delivering robust earnings growth—not because investors are overly enthusiastic and willing to bid up stocks regardless of their underlying fundamentals.

That’s good news, as equity market returns fueled by strong earnings tend to be more resilient than returns resulting from rising P/E ratios that depend on often-fickle investor sentiment.

In fact, valuations today are about where they were at the start of 2025. See the chart above:

• Nasdaq 100 is up 16% this year, but valuations have barely risen (+2%).
• S&P 500 is up 13%, with valuations up just 3%.
• The “Mag 7” tech stocks (+16%) and small-cap S&P 600 (0%) have both seen valuations shrink.
• On average, valuations across the four groups haven’t changed at all this year.

The main driver left for markets is earnings growth—and it looks strong.

• Nasdaq 100: Up 16% this year, supported by a 14% rise in expected earnings.
• Magnificent 7 stocks: Up 16%, with expected earnings up 17%.
• S&P 500 large caps: Up 13%, with expected earnings up 10%.
• S&P 600 small caps: Even these lagging stocks have expected earnings up 5%.

The upshot: Current stock market levels are being well-supported by a solid foundation.

Originally published by Horizon Investments

For more news, information, and analysis, visit the ETF Strategist Content Hub.

Earnings Per Share (EPS) is a measure of a company’s profitability for each outstanding share of common stock. Price-to-Earnings Ratio (P/E) measures a company’s share price relative to its earnings per share (EPS).

The Nasdaq 100 Index is a stock index of the 100 largest companies by modified market capitalization trading on Nasdaq exchanges. The “Mag 7” or Magnificent Seven is a group of seven of the largest and most influential technology-focused companies in the U.S. stock market. These stocks are: Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Telsa. The S&P 500 or Standard & Poor’s 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The S&P Small Cap 600 Index consists of 600 small-cap stocks. A small-cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion. References to indices, or other measures of relative market performance over a specified period of time are provided for informational purposes only. Reference to an index does not imply that any account will achieve returns, volatility or other results similar to that index. The composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change. It is not possible to invest directly in an index. Information obtained from third party sources is believed reliable but has not been vetted by the firm or its personnel

This commentary is written by Horizon’s asset management team. Past performance is not indicative of future results. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves the risk of loss.

The investments recommended by Horizon are not guaranteed. There can be economic times when all investments are unfavorable and depreciate in value. Clients may lose money. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent. Forward-looking statements cannot be guaranteed. Other disclosure information is available at www.horizoninvestments.com.

Horizon Investments is a registered trademark of Horizon Investments, LLC

©2025 Horizon Investments, LLC.