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Uncertainty abounds.
Investors were skittish last week. Share prices jolted higher and lower amid concerns about artificial intelligence (AI) data center spending, upcoming Federal Reserve rate decisions, and the strength of consumer spending, reported Phil Serafino and Natalia Kniazhevich of Bloomberg. These issues will affect the future performance of companies, and investors are trying to anticipate what may be ahead.
In the third quarter, companies were profitable and sales were strong
Overall, U.S. companies performed well in the third quarter of 2025. So far, 95 percent of companies in the Standard & Poor’s (S&P) 500 Index have reported on performance over the period. Almost three-fourths performed better than analysts expected. Overall, company profits were up 13.4 percent for the quarter, reported John Butters of FactSet.
Sales (a.k.a. revenue) have been strong, as well. In the third quarter, S&P 500 companies had the highest combined sales growth in three years (+8.4 percent). “Three sectors are reporting (or have reported) double-digit revenue growth for the quarter: Information Technology, Health Care, and Communication Services,” reported Butters.
Share prices reflect recent performance and investors’ expectations
While strong company performance is reassuring, some analysts and asset managers believe stock prices, overall, are too high. For instance, Bank of America’s November survey of global money managers found that most respondents thought stocks were overvalued, reported Brett Arends of MarketWatch via Morningstar.
Not everyone agrees. Last week, Dan Kemp of Morningstar reported, “Strong revenue growth and unusually high profit margins…alongside the US stock market’s growing concentration in companies benefiting from the rapid growth in AI have led Morningstar’s analysts to increase their estimates of the market’s fair value. As a result, the average US company under Morningstar’s coverage now appears undervalued...”
Expect volatility to continue
While Morningstar analysts think valuations are attractive, they expect markets to remain volatile. The U.S. stock market’s “concentration in tech stocks – companies dependent on long term future growth – brings with it increased risk of lurching price movements driven by short-term changes in investor sentiment.”
There were a lot of ups and downs last week. Major U.S. stock indices ended the week lower. In contrast, U.S. Treasuries rallied, with yields on most maturities falling.
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