Strong second-quarter earnings from major U.S. companies, with about 86% of S&P 500 reporters beating estimates, have pushed stock indexes to fresh highs and eased concerns that the rally depends too heavily on artificial intelligence companies.
Earnings growth has been broad-based across energy, communication services, consumer discretionary, and technology sectors, though concentration among Alphabet and Amazon remains significant—those two accounted for about 71% of the increase in blended S&P 500 earnings since July.
What happened
About 86% of more than 440 S&P 500 companies that have reported second-quarter results beat analyst estimates, pushing major indexes to fresh highs. The index is on course for its seventh consecutive quarter of double-digit earnings growth, with S&P 500 blended earnings up roughly 50% — the strongest growth since the stimulus-driven recovery in 2021.
Why it matters
The broad-based earnings beat across multiple sectors — energy up more than 147%, communication services around 117%, consumer discretionary 92%, and technology 70% — suggests the stock market's gains do not rely as heavily on artificial intelligence companies as some feared. However, earnings growth remains concentrated: Alphabet and Amazon accounted for about 71% of the increase in blended S&P 500 earnings since July, so excluding them would reduce growth to about 32%.
What to watch
The S&P 500 traded at around 28 times trailing earnings last week, below May's level above 29 but well over its 10-year average of 22.5. Investors will next focus on earnings from Cisco and Applied Materials, along with the latest U.S. consumer inflation report.
Strong second-quarter earnings from major U.S. companies have pushed stock indexes to fresh highs, easing investor concerns that the stock market rally relies too heavily on a small group of artificial intelligence companies. About 86% of more than 440 S&P 500 companies that have reported results beat analysts' estimates according to FactSet, and the index is on course for its seventh consecutive quarter of double-digit earnings growth.
Earnings growth has been broad-based across sectors. S&P 500 blended earnings have increased by roughly 50%, the strongest growth since the stimulus-driven recovery in 2021. Energy-sector earnings led the way, rising more than 147%, followed by communication services with gains around 117%, consumer discretionary companies up 92%, and technology up 70%. Upbeat results from Palantir Technologies, Caterpillar, and Walt Disney helped major indexes post their strongest weekly gains since April. Higher oil prices linked to the Iran war drove much of the energy sector's growth; Exxon Mobil's profit more than doubled to its highest since 2022, while Chevron reported record quarterly earnings.
Artificial intelligence spending continued to drive results across sectors. Amazon shares jumped 15% in one session after cloud-computing sales accelerated. Microsoft added a record $450 billion in market value following results that eased concerns about returns from spending on data centres and chips. Demand for generators and construction equipment used in data centres also helped Caterpillar increase total sales and revenue by 24%.
However, earnings growth remains concentrated. Alphabet and Amazon accounted for about 71% of the increase in blended S&P 500 earnings since July. Excluding those two companies would reduce growth from about 50% to 32%. Valuations also remain elevated: the S&P 500 traded at around 28 times trailing earnings last week, below May's level above 29 but well over its 10-year average of 22.5. Investors will turn next to earnings from Cisco and Applied Materials, along with the latest U.S. consumer inflation report.
The second-quarter earnings season has delivered results that challenge a recurring concern among investors: that the recent stock market rally rests too narrowly on artificial intelligence spending by a handful of mega-cap technology companies. With about 86% of S&P 500 reporters beating estimates and the index on course for its seventh consecutive quarter of double-digit earnings growth, the gains appear more distributed across the market than headline figures suggest.
Earnings growth has been pronounced across multiple sectors. Energy earnings jumped more than 147%, driven partly by higher oil prices linked to the Iran war, with Exxon Mobil's profit more than doubling to its highest since 2022 and Chevron reporting record quarterly earnings. Communication services, consumer discretionary, and technology sectors all posted substantial gains (around 117%, 92%, and 70% respectively). Even companies outside pure AI benefited: Caterpillar increased total sales and revenue by 24%, aided by demand for generators and construction equipment used in data centres. Amazon shares jumped 15% in one session after cloud-computing sales accelerated, and Microsoft added a record $450 billion in market value following results that eased concerns about returns from data centre and chip spending.
Yet concentration persists. Alphabet and Amazon alone accounted for about 71% of the increase in blended S&P 500 earnings since July—a fact that underscores how narrowly the earnings engine still runs, even as breadth improves. Valuations also remain elevated: the S&P 500 traded at around 28 times trailing earnings last week, below May's level above 29 but well over its 10-year average of 22.5, suggesting the market has priced in continued strong performance.
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