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Have Expectations Caught Up to Prices? It Depends

Mike Dickson, Ph.D.
Mike Dickson, Ph.D.

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Positive surprises are increasingly coming from non-tech companies


Companies have been beating Wall Street’s earnings estimates, and this season has been no exception. Unfortunately, the magnitude of that outperformance has been lackluster, which is, in turn, putting downward pressure on stocks.

More than 60% of the companies in the S&P 500 Index have now reported their third-quarter earnings, including most of the biggest names by market capitalization (such as Microsoft, Meta, Amazon and Alphabet). Those companies’ aggregate earnings results have been just 3.3% above estimates (see the chart). That’s the lowest level in two years.

So while businesses are still doing better than expected, the additional upside they’re delivering isn’t as strong as it has been. That’s an unwelcome surprise to investors, who often expect companies that have beaten estimates by large margins to keep improving that outperformance and post increasingly larger earnings beats. The current reversal is keeping stock prices in check.


Magnitude of Positive Earnings Surprises for S&P 500 Companies
(In Aggregate, By Quarter)

Bloomberg, calculations by Horizon, data as of 10/29/2026


The main issue: Despite their objectively strong results, some big-name AI and related tech companies are now struggling to live up to investors’ increasingly lofty expectations. Last week, for example, investors punished shares of Alphabet, Intel, and Amazon on signs of softer-than-anticipated growth in key areas of their businesses. Overall, of course, AI demand remains strong. The bigger issue today is that AI companies’ financial results are no longer consistently blowing past Wall Street’s lofty expectations, making it increasingly important to invest selectively in the sector.

The good news: The rest of the market has broadened out and looks much better, with positive earnings surprises outside the tech/AI sectors remaining strong. For example, the companies in the S&P 500 ex-Mag 7 Index have topped earnings expectations by around 10% on average. Such results are clearly affecting performance: While the tech-heavy Nasdaq 100 Index is down 9.5% from its all-time high, the S&P 500 Index is off just 3.3% from its high, and the S&P 500 Equal-Weight Index has slipped just 2.2%.

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 S&P 500 is a stock market index tracking the stock performance of 500 companies listed on stock exchanges in the United States that are considered to have large market capitalizations. 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.
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.
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©2026 Horizon Investments, LLC.
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