A Record Number of S&P 500 Companies Issued Upbeat Guidance Before Earnings Season. Should You Buy an Index Fund Now?

In the third quarter heading into earnings season, 72 S&P 500 companies announced positive guidance for their quarterly earnings per share, marking the highest number since tracking began in 2006. This is a strong signal for investors holding index funds, such as the Vanguard S&P 500 ETF (VOO). However, the timing of this record creates a dilemma for potential buyers.

The S&P 500 is currently trading near its October 6 closing high, down about 1%, and its fund trades near $709 per share. The situation is unusual, with 62% of the 116 S&P 500 companies that gave third-quarter guidance pointing higher, compared to an average of 40% over the last five years. Analysts' upward revisions and companies forecasting their own numbers above Wall Street's average estimate have contributed to the positive outlook.

The tech sector, led by software makers and chipmakers, has driven this record, giving more positive guidance than the entire index has averaged per quarter in the last five years. Despite the record, investors should be aware that most of the record comes from the tech sector, which may be the first to cut forecasts if spending on artificial intelligence cools.

While the price-to-earnings ratio of the S&P 500 is above its 10-year average, the earnings analysts expect for the next 12 months bring it closer to this average. Overall, while the record of upbeat guidance offers some reassurance, it is not a definitive indicator of future stock movements.