S&P 500 Profits Surge 50% as Companies Crush Expectations

The S&P 500 is heading for its strongest quarter of profit growth in five years. FactSet's Earnings Insight report dated 7 August 2026 puts the blended second quarter earnings growth rate for the index at 50.4% with 88% of companies reported, which would be the highest reading since the second quarter of 2021. Of the companies that have reported, 86% beat their EPS estimate, above the five year average of 78% and the ten year average of 76%, and also the highest since the second quarter of 2021. On revenue, 76% beat, against a five year average of 70%.

The size of the beats is more unusual than the count of them. Companies are reporting earnings 29.2% above estimates in aggregate. Blended revenue growth is 15.0%, the highest since the fourth quarter of 2021, and the blended net profit margin is 16.9%, a record in FactSet's series going back to 2009.

Strategists have taken the quarter at face value. On 10 August, JPMorgan strategists led by Dubravko Lakos-Bujas raised the firm's year-end S&P 500 target to 8,000 from 7,800, lifting the 2026 earnings estimate to $365 a share and the 2027 estimate to $420, and framed the increase as earnings delivery rather than a higher multiple. FactSet's bottom-up consensus expects 30.0% growth for calendar 2026 and 13.6% for 2027.

The bar was raised before the quarter, not lowered

The standard objection to any beat rate is that estimates get cut in the weeks before companies report, so the bar is lowered until it can be cleared. FactSet tested that for this quarter and found the opposite. The bottom-up EPS estimate for the second quarter rose 3.4%, to $81.54 from $78.84, between 31 March and 30 June, against average declines of 2.0% over five years, 2.7% over ten and 4.2% over twenty. It was the largest such increase since the second quarter of 2021, and it was not evenly spread, with energy estimates raised 61.5% while health care estimates were cut 15.3%.

Revenue supports the same reading, and revenue cannot be written up by revaluing anything. The energy sector reported 42.5% revenue growth on an average oil price of $92.55 against $63.68 a year earlier, and the semiconductor industry reported 77%.

Two companies inside the index number

FactSet publishes the sensitivities, and they are large. Excluding Alphabet, blended index earnings growth falls from 50.4% to 38.8%. Excluding Amazon.com, it falls to 44.2%. Excluding both, it falls to 32.0%. Together the two companies account for about 71% of the increase in dollar-level index earnings since 30 June. The aggregate earnings surprise of 29.2% would be 10.9% without them, and the record net profit margin of 16.9% would be 15.0%, which would still be a record.

The distance between 50.4% and 32.0% is two accounting entries, and neither of them is a sale, a product or a customer.

Alphabet's record beat was a three cent miss

Alphabet reported second quarter revenues of $119.8 billion and operating income of $40.8 billion, up 30% from a year earlier. Below the operating line, other income and expense was a net gain of $97.98 billion against $2.66 billion a year earlier, which the company's table breaks out as a net gain on equity securities of $99.0 billion, described in the release as primarily net unrealised gains. Diluted earnings per share were $9.11, against $2.31 a year earlier.

Alphabet then discloses the arithmetic itself. In a footnote to the other income table in its 8-K exhibit, it states that the net effect of the $99.0 billion gain increased the provision for income tax by $21.9 billion, net income by $77.1 billion, and diluted net income per common share by $6.26.

FactSet records Alphabet's quarter as $9.11 against a mean estimate of $2.88, one of the largest positive surprises in the index's history. Take out the $6.26 that Alphabet attributes to the equity gain and $2.85 is left, three cents below the estimate the record beat is measured against. The estimate was built by analysts modelling an advertising and cloud business. The actual it was compared with contains a valuation mark on a portfolio.

Amazon's markup, and the business under it

Amazon reported net sales of $200.6 billion, up 20%, and operating income of $27.5 billion against $19.2 billion. Other income and expense, net came in at $53.4 billion against $1.1 billion a year earlier, which the release describes as non-operating pre-tax income primarily from investments in Anthropic. Net income was $62.6 billion, or $5.75 per diluted share, against $18.2 billion and $1.68.

Amazon does not disclose a per-share effect for the gain the way Alphabet does, so what follows is my arithmetic rather than a company disclosure. On the quarter's effective tax rate of 22.5% and 10,903 million diluted shares, the $53.4 billion works out at roughly $41 billion of net income and about $3.80 of the $5.75, which would leave something near $1.95 against the $1.82 mean estimate. What is not an approximation is the 43% rise in operating income, which beat the company's own guidance range of $20 billion to $24 billion.

What the higher target rests on

A price target justified by earnings delivery inherits whatever those earnings are made of. Roughly $118 billion of after-tax income across the two companies in a single quarter came from writing up holdings that were not sold, and that does not repeat unless the same holdings are written up again by a similar amount. The entries run in both directions, and Alphabet notes in its release that fluctuations in the value of its investments could significantly contribute to the volatility of other income in future periods.

The market has applied part of that discount already. Companies reporting positive surprises rose 0.4% on average from two days before the release to two days after, against a five year average of 1.0%. The trailing twelve month price to earnings ratio for the index is 28.2, against averages of 24.4 over five years and 23.5 over ten, and that denominator already contains both gains.