Earnings continue to set records
With nearly 90% of S&P 500 Index companies having reported their second-quarter earnings, the bottom line has surprised by over 29% thus far compared to analyst estimates (see the chart).
We highlighted a similar strong trend during the first-quarter reporting season, yet fundamentals continue to outpace expectations, marking this the second quarter in a row of some of the best aggregate earnings the market has seen in recent memory.
It is worth noting that several one-off items related to tariff refunds (for Amazon) and unrealized gains in private AI holdings (for Alphabet and Microsoft) skew these numbers higher, but even after stripping these one-time effects out and the trends remain. Excluding the 10 largest companies by market cap, the S&P 500 Index still delivered an earnings surprise of nearly 12%, up from 10% last quarter, pointing to broad-based strength beyond the market’s largest names.
S&P 500 Q2 Earnings Per Share (EPS) Surprise
Bloomberg, calculations by Horizon, data as of 08/07/2026
Perhaps another surprise to investors is what’s behind rising prices. Stock prices can rise through higher earnings, higher valuations, or both. This year, earnings have been the overwhelming force, with forward valuations actually down year-to-date across markets. As earnings expectations have outpaced price gains, 12-month forward price-to-earnings (PE) ratios have fallen:
- 9% for the S&P 500 Index
- 18% for the Nasdaq-100 Index
- 8% for the S&P 600 Index
- 11% for the MSCI World Ex-US Index
As we highlighted last week, long-term U.S. Treasury yields are near 20-year highs, driven by these healthy growth trends, but also on fears of persistent inflation, Fed policy uncertainty, and an escalation in the Iran war.
While the market will consistently face risks and negative headlines that can derail strong trends in the short term, earnings growth remains the long-term driver of equity returns. With markets near all-time highs, we believe it is especially important to focus on the broader fundamental picture. Among the forces supporting the current rally, strong earnings provide a solid foundation.
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