What risks? Earnings are up and to the right

At the start of 2026, few investors expected an energy shock, a monetary policy pivot and the highest level of interest rates since 2002. Fewer still expected the S&P 500 to climb roughly 15% despite those headwinds. The reason is simple: earnings have been far stronger than anyone anticipated.

The earnings supercycle remains intact. And more importantly, it’s becoming broader. Even as investors focus on valuation, policy debates or macroeconomic risks, over longer periods of time, it’s corporate earnings that ultimately drive the equity markets. And today, that backdrop remains the strongest in almost two decades.

S&P 500 earnings growth is expected to increase approximately 29% year-over-year in the third quarter. If realized, it would mark eight consecutive quarters of double-digit earnings growth, the longest streak since the rebound that followed the global financial crisis.

Driving the upside

In the second quarter, S&P 500 earnings per share (EPS) grew 52% year-over-year. Even excluding one-time gains that boosted results for some large technology firms, that figure sits at 34%.

Past performance does not guarantee future results. It is not possible to invest directly in an index.

Despite initial concerns around slowing economic activity, expectations for third-quarter sales growth have steadily moved higher and now sit at 12.1% – an estimate that’s only increased during the course of the summer, even as interest rates marched higher. That's well above what would typically be expected with the current pace of nominal economic growth. It reflects continued strength in artificial intelligence (AI) infrastructure spending and technology investment.

At the same time, companies continue to demonstrate an ability to protect profitability. That’s most visible in corporate margins. In the second quarter, net profit margin sat at 17%. In the third quarter, a modest decrease to 15% is expected, which still leaves profitability well above both last year’s level and the five-year average of 12.6%.

Past performance does not guarantee future results. It is not possible to invest directly in an index.

Not just tech

While technology continues to lead the earnings story, it is no longer the only story. The information technology sector now makes up around 40% of the broader S&P 500, so strong tech reports will naturally have an outsized influence on index-level results. But beneath the surface, earnings growth is no longer confined to a small group of winners. While five of the 11 S&P 500 sectors are expected to deliver growth above 10% this quarter, as many as seven sectors have the potential to exceed that threshold.

This is especially important as the Magnificent 7 have underperformed the broader market, rising roughly 12% this year compared to the S&P 500’s roughly 15% gain. And yet, earnings for the Magnificent 7 are expected to rise approximately 59% this year, while growth for the remaining 493 companies in the index is expected to be about 23%.

That’s still a sizable gap, but the fact that earnings growth is expanding beyond a handful of companies that have dominated index returns and into a broader set of sectors and industries is healthy.

Past performance does not guarantee future results. It is not possible to invest directly in an index.

Estimates and early reporters

What's perhaps most notable is what’s happened to analyst estimates. The year traditionally begins with optimistic profit forecasts that tend to gradually drift lower as the year progresses. This year has shown the opposite. Earnings expectations have been revised materially higher, not lower, as companies continue to exceed forecasts by significantly wider-than-expected margins.

Early earnings results are reinforcing that narrative, with the vast majority already beating estimates. As a leading indicator of what to expect throughout the rest of third-quarter earnings season, it offers an encouraging signal for the broader reporting season ahead.

The third-quarter corporate earnings season will determine whether companies can once again clear a high bar. Expectations have risen, estimates have moved higher and investors are paying close attention to guidance for the remainder of the year. Can the blockbuster gains continue? If the early signals are any indication, the story that has defined the stock market in 2026 will likely remain intact: Corporate America continues to deliver earnings growth that is stronger, broader and more resilient than expected.

All market and economic data as of 10/08/2026 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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