Last week began the heart of earnings season, providing the market with new, highly anticipated fundamental data. And as we at Cornerstone discussed previously, we think the fourth-quarter 2025 earnings results are especially important to show necessary support for the market’s overall increased valuations that took place through 2025.
At this early stage of earnings season, we can comfortably say support of those valuations via earnings growth is taking shape.
As of this writing, 119 companies in the S&P 500* reported earnings results so far with an additional 102 companies alone reporting last week. Of these firms, 76% have reported actual results that beat estimates, which is in line with the 10-year average.
The companies beating earnings did so by a median of 6%, with an average surprise to the upside of 9.2%. Perhaps most eye-opening is that this level of earnings surprises led to year-over-year earnings growth of 18% through last week.
Most importantly when digging under the surface, it’s apparent this year-over-year earnings growth expansion isn’t just due to sales growth, which currently sits at 9.1%:
It means only half of the per-share earnings expansion is a result of revenue increases. Crucially, we can see that the other half of earnings growth comes from increased productivity (i.e., a benefit of AI) and sound fiscal management by these companies.
Looking at just last week, here is a sampling of companies^ blowing out earnings expectations as AI infrastructure buildouts and productivity enhancements keep showing tangible benefits:
Quite frankly, these earnings could not have come at a better time. It was just a couple of weeks ago the focus was on chaotic headline news that led to emotional reactions and short-term volatility.
Thankfully, last week's flood of fundamental earnings data allowed many to begin to step back and strip away the headlines. It actually allowed the market to do what it's supposed to do, which is act as a marketplace.
Over time, markets do not sell because of rhetoric. They follow fundamental data and capital. As we pointed out last week, the underlying market data told us headline rhetoric wasn’t affecting institutional money flows, which is what really matters for the market.
As a refresher from the macro perspective, as always, we can start with MoneyFlows’ trusty Big Money Index (BMI), which is a 25-day moving average of netted institutional investor activity:
As you can see, “big money” inflows found their footing late last year and took control seemingly as no one was looking. The BMI has climbed ever since, sitting currently at just a little over 72%.
For us at CFS, this data is vital because the BMI doesn't measure emotion. It measures large institutions’ behavior. This matters because they move the market by basing capital decisions on probabilities and opportunities, not headlines.
We can clearly identify why the BMI has been steadily rising. Equity inflows have been significant and consistent since the start of the year:
This reflects overall market and economic confidence from the investors that matter most from a market pricing perspective.
Potentially even more interesting is the additional exceptional inflows of capital to exchange-traded funds since the beginning of the year, with almost no significant selling whatsoever:
These levels of inflows clearly paint a picture of strength and commitment, not fear or anxiety. For perspective, look at how many inflows have gone to small- and mid-cap companies, which tend to spur economic growth:
There are nearly three times as many overall inflows as outflows. This type of action does not happen in fragile markets.
So, while news headlines were seemingly suggesting turbulence, the flow of capital clearly didn’t agree. Rather, the strong inflows show calm confidence in the future.
Furthermore, as we detailed last week, this underlying market strength has a broader foundation supporting it than we've seen in recent history. This broadening rotation is historically a hallmark of extraordinarily durable markets.
Since the start of 2026, there’s been significant breadth and diversification in the economic sectors receiving “big money” inflows:
Markets with this level of underlying durability are built and supported when capital inflows spread out to find opportunities across many sectors at once.
This has happened quietly because news headlines were loud and making people feel uncomfortable. But the current market data is yet another example that news is for entertainment and data is for investors.
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*Past performance does not guarantee future results.
*Investing involves risk and you may incur a profit or loss regardless of strategy selected.
* The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
^ These equities are owned in Cornerstone client accounts.
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