S&P 500 companies delivered 31% year-over-year earnings growth in the second quarter, ahead of the 23% forecast, according to Bloomberg. Bloomberg Intelligence said it was the strongest increase in its data set since 1992 outside rebound periods that followed major recessions.
Second-quarter results came in stronger than expected
More than 90% of S&P 500 constituents have reported earnings. Based on those results, aggregate first-half earnings are on track for the best same-period showing since 2021.
Analysts said the upside came from two factors: the resilience of the U.S. economy and margin gains tied to AI. Net profit margins for S&P 500 companies, which had previously struggled to move above 14%, have now risen to nearly 16%.
AI is shifting from a cost center to a profit center
Mark Hackett, chief market strategist at Nationwide, said AI had largely been a cost center in recent years, but that an inflection point has emerged this year and it is starting to become a profit center.
Because earnings growth has outpaced the rise in the index, the S&P 500’s forward 12-month price-to-earnings ratio has fallen from about 26 times at the start of the year to just below 22 times.
Strategists keep raising their year-end index targets
Wall Street strategists have continued to revise forecasts higher. The average year-end target for the S&P 500 now stands at 7,894, which is still about 1% above the record high reached this week.
Forecasts for full-year earnings growth have also been lifted, from 15% at the start of the year to 27%.
Earnings strength is spreading beyond megacap tech
The current profit upswing is no longer confined to large technology companies. As of Aug. 12, about three-quarters of roughly 1,500 U.S.-listed companies that had reported results had beaten expectations on both earnings per share and revenue.
Healthcare was the only S&P 500 sector to post an earnings contraction in the second quarter.