By: Aaron Wall, CFA
Partner, Portfolio Manager
Happy Friday everyone! As promised in the July 24 edition of Investment Insights, we are back with an update on the second-quarter earnings season. Participation has been broad-based. Ten of the 11 S&P 500 sectors are reporting year-over-year earnings growth, and eight sectors are reporting double-digit growth numbers, led by the Energy, Communications, and Consumer Discretionary sectors. Let’s dig into the numbers.
Earnings, Earnings and More Earnings
The Q2 earnings season for the S&P 500 has been nothing short of remarkable. According to FactSet, with roughly 90% of the S&P 500 reporting, headline results indicate a blended earnings growth rate of close to 50%. S&P 500 revenue growth rate for the quarter stands at 15.0%. If both data points hold up through the end of the reporting season, it will be the best quarter for earnings and revenue growth since 2021.For full context, two mega-cap technology firms added roughly 18-20% to the headline earnings growth number through non-operating, one-time unrealized investment gains. Excluding these one-time line items, earnings are up roughly 30%, which is still an exceptionally strong quarter.
Source: FactSet
What Does This Mean For Investors Moving Forward?
The earnings outlook for the third and fourth quarters remains constructive. Earnings estimates for Q3 and Q4 are now 27% and 25%, respectively, which would indicate that full-year 2026 earnings growth would be over 30%. That is a remarkably strong number that is not often found mid-economic cycle.Looking further out, according to data compiled by FactSet, earnings estimates for 2027 currently stand at a still very respectable 13.6%. While that pace is slower than the extraordinary gains projected for 2026, it remains well above the long-term average of about 8-9%.
From our standpoint, we remain encouraged by the favorable earnings backdrop for both the remainder of 2026 and into 2027. While periods of volatility are inevitable, particularly during the late summer and early fall months of a midterm election year, the underlying fundamentals continue to provide an important source of support for equities.
While we certainly do not expect markets to move higher in a straight line, we believe the earnings outlook strength provides a solid fundamental foundation for equities. As always, we remain focused on managing risk, but the combination of resilience in the macro economy combined with a remarkably strong earnings backdrop allow us to continue being constructive on the long-term outlook for the equity markets.
