Investors are bracing for the third-quarter 2025 earnings season, which unofficially begins next week with reports from major financial institutions. Despite the sell-off on Friday for stocks, optimism is alive and well for earnings.

On Tuesday, major money-center banks including JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) report quarterly results along with investment bank Goldman Sachs (GS). After a strong quarter for the broader market, driven largely by excitement around artificial intelligence, the focus will be on whether corporate performance can justify today's elevated stock valuations.

Continuing the bullish theme in 2025, the technology sector is expected to be the primary engine of earnings growth for the S&P 500. Following a summer rally powered by AI-related megacaps like Nvidia (NVDA), Microsoft (MSFT) and Alphabet (GOOGL), analysts will be looking for confirmation that this optimism is backed by positive results.

The financial sector is also in the spotlight, having benefited from resilient trading revenues and a recovery in investment banking activity. A steepening yield curve has also lifted expectations for the financial sector. Analysts will be watching for signs of credit stress or lending slowdowns, particularly in sensitive areas like consumer loans and commercial real estate. Despite more interest rate cuts expected later this year, banks have managed their net interest margins effectively. Investors will monitor outlooks for how management plans to protect profitability in a declining-rate environment.

Analyst estimates have risen throughout the quarter, suggesting genuine confidence in corporate performance. However, stock valuations have also risen, with the S&P 500's forward price-to-earnings ratio sitting well above its historical average. Strong results will be necessary to justify these valuations.

While some sectors thrive, others face headwinds. Energy, for example, is predicted to see a year-over-year decline in earnings due to volatile oil prices, which hit 5-month lows on Friday. Consumer staples face margin pressure from inflation and cautious spending. The health of the U.S. consumer will be a key focus, with results from retailers, restaurants, and other discretionary companies providing insight into whether spending momentum can be sustained.

This earnings season is expected to be a critical checkpoint for the market. While overall estimates are healthy and positive guidance is high, performance is concentrated in a few key sectors. The results will ultimately determine if the current market rally, largely fueled by AI optimism, has a firm footing in reality or if a repricing is on the horizon. Guidance may be key to the earnings season so watch for commentary on the corporate outlook heading into the end of the year.

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