Fidelity's Timmer Says Q3 Earnings Could Jump 35%: Is Wall Street Underpricing It?

Q3 Earnings Growth Prediction

Fidelity's Jurrien Timmer predicts Q3 earnings growth could reach 30% to 35% if recent quarters follow the typical bounce. Trailing earnings are up 28%, with forward earnings expected to rise another 20%. However, the market's trailing P/E multiple has fallen 10% year-over-year, leaving investors questioning the value of faster profits.

Historical Context

History shows that investors don't tend to pay top multiples for peak earnings growth. Earnings growth near 23% around 2018 gave way to a roughly 24% drop in P/E. The same happened after the 2021 reopening, when growth near 50% preceded a drop of about 33%. This pattern suggests that investors may be underpricing Q3 earnings growth.

Potential Disruptions

A single mega-cap capex miss, meaning a shortfall in AI capital spending, could disrupt earnings. Schwab's Kevin Gordon, the firm's head of macro research and strategy, has flagged a risk to forward earnings growth. An average S&P 500 stock fell 14% from peak to trough since early August, and AI stocks now carry much of the index, so one weak report could show whether the lower multiple was prudent.