Despite uncertainty about when the Federal Reserve will cut interest rates —and Wall Street concerns over the Fed holding interest rates at a 23-year high weighing on stocks— earnings have come in above, on average, Wall Street’s expectations.

Through about two-thirds of the S&P 500’s fourth quarter 2023 reports, companies are posting an average 6-percentage-point earnings per share beat this quarter, per Bank of America. That’s about double the average 3-percentage-point beat normally seen by S&P 500 companies.

Overall, 70% of companies have exceeded Wall Street expectations, which is above the historical average of 63%. The S&P 500 (^GSPC) is on pace for earnings per share to grow 1.9% compared to the same quarter a year prior, per FactSet.

Bank of America US and Canada equity strategist Ohsung Kwon told Yahoo Finance that based on expectations, earnings thus far have been “good.”

“The beat has been driven by margins, not necessarily sales,” Kwon said. “I don’t think anybody really expected sales to improve that much in Q4 … Companies have cut costs, margins are improving, and companies are delivering.”

This has kept the constructive story for stocks intact. The S&P 500 is up about 3.4% since JPMorgan (JPM) and other large banks kicked off the official start of fourth quarter reporting on Jan. 12.

As Deutsche Bank chief equity strategist Binky Chadha wrote in a research note on Monday, this is well above the average 2% rise seen in the benchmark through the first four weeks of earnings reports.

Earnings haven’t come without blemishes, though. Mentions of weak demand remain “elevated,” per BofA, and have played out in revenue numbers that are barely topping estimates.

Long term, BofA believes the current lackluster demand story will improve. Kwon points to the rebound in Korean exports, which include key products such as chips. Korea is a leading indicator of the global manufacturing cycle, per Kwon, and, notably, the US imports more goods from Korea than any other country. A similar trend is playing out on US soil too, where a recent rebound in the US ISM manufacturing index serves as a potential indicator of an uptick in future business activity.

“If we start to see demand actually start to improve, then that’s when we really start to see margins even improving further because companies will see that operating leverage moving forward,” Kwon said.

A key bear case: a material uptick in layoffs. But at this point, layoffs haven’t become widespread enough to dominate closely followed economic indicators like weekly jobless claims.

Bank of America believes the peak of the layoff cycle already came, as noted by significantly higher mentions of layoffs in the first quarter of 2023 than in the current reporting period. BofA’s team believes that earnings are set to keep growing, and per its research, that is not typically a time period where layoffs increase significantly.

“Historically, layoffs and earnings cycles have shown a strong inverse correlation,” Kwon and his colleague Savita Subramanian wrote in an earnings research note on Monday. “The earnings upcycle that we expect in 2024 suggests that the peak corporate layoff cycle is likely behind us. The job market remains robust.”

Broadly, there have been signs of scrutiny from investors this earnings season. Companies that miss Wall Street’s expectations for earnings and revenue are seeing their stocks fall 4.3% on average the next day, per BofA. This is well above the typical average drop of 2.4%.

“Overall market sentiment has improved a lot over the past two months or so,” Kwon said. “Valuations are not cheap. And because of that, if you are missing [earnings estimates], then you’re getting penalized more than before so the bar is pretty high.”

The signs of weakness have expanded beyond the S&P 500 too. Analysis from RBC Capital Markets shows that while more than 70% of S&P 500 companies are topping earnings estimates, just 62% of Russell 2000 (^RUT) companies are doing the same. This has played out in the market action where the Russell 2000, which many on Wall Street have predicted will see significant gains this year, is down less than 1%for the past month. Meanwhile, the S&P 500 has gained more than 5%.

“Earnings results from the average stock are not nearly as good as the economic data, particularly for lower quality areas,” Morgan Stanley chief investment officer Mike Wilson wrote in a note to clients on Sunday night.