S&P 500 companies are on track to deliver their strongest earnings growth in five years.
And unlike the headline numbers suggest, the most interesting part of this earnings season may be what happens when you look beneath the surface.
The Numbers Are Hard To Ignore
With 88% of the index having reported, blended earnings growth for the second quarter stands at 50.4%, according to FactSet’s latest earnings insights.
If that holds, it would be the strongest quarterly earnings growth since the second quarter of 2021, when profits surged 91.6%.
Revenue growth is also accelerating. At 15.0%, it is on track to reach its highest level since the fourth quarter of 2021, when revenue grew 16.1%.
And there is another record hiding in the numbers.
The S&P 500’s blended net profit margin has climbed to 16.9%, the highest level since FactSet began tracking the measure in 2009. The previous record was 14.8%, set just one quarter ago.
Despite these numbers, the SPDR S&P 500 ETF Trust (NYSE:SPY) is trading at 20 times its forward 12-month earnings. That’s only marginally higher than its 10-year average of 19x.
The Strength Is Broad
Ten of the S&P 500’s 11 sectors are reporting year-over-year earnings growth. Eight are posting double-digit growth, led by Energy, Communication Services, Consumer Discretionary, Information Technology and Materials.
The beat rate is equally impressive.
So far, 86% of companies have reported earnings above estimates, well above the five-year average of 78%. If that figure holds through the end of the season, it would be the highest beat rate since the second quarter of 2021.
Companies are also beating expectations by an unusually wide margin. Aggregate earnings are running 29.2% above estimates, compared with a five-year average of just 7.0%.
That would be the largest earnings surprise FactSet has recorded since it began tracking the metric in 2008.
Then The Picture Gets Complicated
The earnings surprise is being amplified by a small number of exceptionally large results.
Alphabet Inc. (NASDAQ:GOOGL) reported GAAP EPS of $9.11, compared with a $2.88 estimate. But the result included a $98 billion gain in other income, primarily from unrealized gains on equity securities.
Amazon.com Inc. (NASDAQ:AMZN) reported $5.75 in GAAP EPS against a $1.82 estimate. Its result included a $53.4 billion gain in other income, primarily related to investments in Anthropic.
The impact on the index is enormous.
Together, Alphabet and Amazon account for about 71% of the increase in dollar-level S&P 500 earnings since June 30. Excluding them, second-quarter earnings growth falls to 32.0% from 50.4%.
That sounds like a warning.
It isn’t necessarily one.
The Operating Story Is Still Strong
Even after stripping out the unusual contributions from Alphabet and Amazon, 32% earnings growth would still be extraordinary.
It would mark the second consecutive quarter above 25% and the seventh straight quarter of double-digit growth.
Energy earnings are up 147% year over year, the strongest growth of any sector.
Revenue is up 42.5%, helped by an average oil price of $92.55 in the second quarter, 45% above a year earlier.
Overall, analysts expect earnings growth of 27.4% in Q3 and 25.2% in Q4, with full-year 2026 growth projected at 30.0%.
Technology tells another important story.
Semiconductors and semiconductor equipment are reporting 135% earnings growth alongside 77% revenue growth.
Strip the industry out and Information Technology’s earnings growth falls to 34.3% from 70.4%.
Even then, the growth remains powerful.
It also shows just how quickly AI infrastructure spending is moving from an investment theme into corporate earnings.
And the momentum is not expected to disappear immediately. Analysts project S&P 500 earnings growth of 27.4% in Q3 and 25.2% in Q4, with full-year 2026 growth expected to reach 30.0%.
America’s earnings machine is working. And increasingly, AI is one of the engines driving it.
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