Corporate America is Showing Off

Today I want to dig a little bit deeper into the incredible earnings season that is now wrapping up.  But first, let's check in on the markets.

But Nathan...We've got war in Iran, gas prices are up, mid-term elections are looming, and interest rates are through the roof....Shouldn't this be bad?

Well, in the short term....Yes, any of those things can be bad for the markets.  But as I have said 1,000 times, ugly headlines can impact equity markets in the short-term, but over the long-term, markets tend to follow earnings.  And what we are seeing right now in corporate earnings is pretty incredible.  Just take a look at this snapshot below of second quarter 2026 earnings results for the companies that make up the S&P 500.  

• EPS, or earnings per share, are up 50% from 1 year ago.  Now, this gets a huge bump from Alphabet (Google) and Amazon who posted enormous growth that included some one time items.  But even if we back those two outliers out, we see in the bottom right that ex-Alphabet & Amazon, earnings growth was still 32% vs a 5 year average of 15%.
• On average, corporations are reporting earnings 29% higher than analysts had expected.
• Top-line revenues increased by 15%, 6 points higher than the 5 year average of 9%.  
• Profit margins are coming in near 17% vs a 5 year average of 12.5%.

Revenues are up.  Profit margins are up.  Earnings are up.  Everywhere you look, you see strength.  Corporate America is rolling and this is why the stock market is up. We don't need to overcomplicate it. This is what matters most at the end of the day.

Now, having said that, these numbers are telling us what HAS HAPPENED and not what WILL HAPPEN.  The future is uncertain, so earnings looking great today is certainly no guarantee of future stock market performance.  Do I expect to see this level of strength in earnings?  Well, no. This was a historic quarter that would be difficult to replicate.  But analysts are still pretty bullish on the outlook over the next 12-18 months and expect earnings to continue to grow at a solid clip from here.  Take a look at the chart below for some forward looking estimates:

We can see that analysts are expecting Q3 and Q4 earnings growth to be quite strong as well at better than 25% earnings growth and double digit revenue growth.  And looking out even further into 2027, the expectation is for revenues and earnings to continue to grow at a solid clip, albeit a slowdown from this year.  Earnings are growing, and right now the expectation is for that to continue.  So if anyone questions why the market is going up, this is the simple answer.

But before I ago, I'll say one more time....The future is always uncertain.  We should always be mentally prepared for market corrections and volatility.  As we know, markets tend to follow the earnings over the long-term...But at any moment we could get a wave of ugly headlines that create some adversity regardless of the underlying earnings strength.  But if we can learn to expect there will be volatility and accept that periodic corrections are normal, we'll be less likely to make a bad investment decision when the next round of adversity hits.

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