The Math Behind Q4 Earnings That Could Make or Break This Rally

by Roger Scott | Jan 9, 2026

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Earnings season is almost here, and I’ve been digging into the numbers for Q4 2025. What I found is something every trader needs to understand before the first reports hit the tape.

The market’s riding high right now, but the expectations baked into Q4 earnings — which begins next week — tell a very different story about where the pressure really sits. And if you’re not paying attention to these numbers, you could get blindsided when companies start reporting.

Here’s what you need to know: For Q4 2025, the S&P 500 (SPY) is expected to deliver 6.9% earnings growth on 7.7% higher revenue. That might sound solid, but here’s the kicker — this would follow 13.9% earnings growth and 7.8% revenue growth for the full year 2025.

That’s twice what we were expecting. A huge positive surprise. But before you get too excited, let me show you where the real risk lies.

Tech’s Critical Role

If you peel back the layers, the entire story shifts dramatically. Once you remove the Technology Sector (XLK), Q4 earnings growth slides from 6.9% to just 3.6%. That’s how much weight the sector is carrying right now. The market’s leaning heavily on a handful of companies to keep the broader index numbers looking healthy.

And the concentration doesn’t stop there. The Magnificent Seven are expected to deliver roughly 16% earnings growth, powered by similar revenue expansion. These companies have become such massive engines of profit that their performance alone can skew the entire SPY.

When just seven companies hold that much influence, any stumble is magnified across the market.

This quarter also marks the tenth straight period of double-digit earnings growth for XLK, which is an impressive streak but also a setup. Expectations are sky high, and the market has zero patience for disappointment from this group.

If even one mega cap reports soft numbers, the ripple effect will be felt instantly.

Excluding the Magnificent Seven, earnings growth for the rest of the index drops from 6.9% to 3.4%. That means half the growth is concentrated in a tiny corner of the market — a setup that works wonderfully on the way up but creates real vulnerability when the cycle turns.

Beyond Tech: Other Sector Contributions

But it’s not all tech doing the heavy lifting. The Financial Select Sector (XLF) and Consumer Discretionary Select Sector (XLY) are showing meaningful strength, each expected to post around 8% earnings growth on roughly 6.5% higher revenue.

These sectors don’t have the explosive impact of XLK, but they provide essential support and help stabilize the overall earnings picture.

Heading into earnings season, the revision trend has softened but not enough to ring alarm bells. Expectations are still relatively firm compared to prior quarters.

The real issue isn’t broad weakness — it’s the concentration of growth. With so much riding on the same companies and the same sector, traders need to understand exactly what’s priced in and where the fragility sits.

Earnings season is where the narrative meets reality. Track these expectations closely. Watch how actual results stack up against them. If the key players come in well ahead, the rally can extend. But if XLK or the mega caps falter, there isn’t enough support elsewhere to cushion the blow.

I hope that helps!

Roger Scott
Roger Scott Trading

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