Investors are cheering second-quarter results
Corporate profits continue to impress and reassure investors. Now that over 90% of S&P 500 companies have reported their second-quarter earnings, here’s how the results stack up:
- Companies’ actual earnings have been 8.4% higher than expected in aggregate, continuing the recent string of strongly positive quarterly surprises (see the chart).
- Earnings have grown overall by a healthy 11.4% year-over-year.
These are the types of results many investors needed to feel confident about the S&P 500’s current price-to-earnings ratio, which, at more than 22*, is approaching the highs it hit following the Covid recovery during the second half of 2020. That valuation is especially impressive given how much higher bond yields are today, with the 10-year Treasury at 4.25% versus less than 1% approximately five years ago. All else being equal, higher yields often mean lower stock market valuations (and vice versa).
S&P 500 Quarterly Earnings Surprises
Source: Bloomberg, calculations by Horizon, data as of 08/08/2025. It is not possible to invest directly in an index. EPS = Earnings per share
The upshot: Solid second-quarter profits are helping investors justify stocks’ lofty levels. In our opinion, however, markets appear to be somewhat stretched in terms of valuations, concentration, and leadership, with a relatively small handful of names generating the bulk of the index’s returns lately.
The next big test: Nvidia and Broadcom announce in late August and early September. The quarterly results and outlook for these AI darlings will likely play a significant role in shaping the market’s direction as summer winds down and we enter the seasonally challenging month of September.