You know things are going well when corporate America’s expected to report profit growth of almost 30% and the US economy’s not comping a recession year.
That’s the setup for Q3 earnings season, which kicks off in earnest next week.
Not that you need a reminder, but Q2 was among the best quarters ever for EPS growth excluding quarters during which the comparable period from the prior year was marred by a downturn. Hell, Q2 might’ve been the best quarter ever outside of recession recoveries.
As the figure below, from Goldman, reminds you, aggregate S&P 500 earnings grew by half versus Q2 2025, an absurdist result aided by investment write-ups at Alphabet and Amazon, which own massive stakes in Anthropic.
The enormous benefit of those write-ups for overall index EPS growth (+18ppt) actually served to accentuate the “ex-other income” growth result: Profits grew by a third versus the prior year even without those gains, a veritable bonanza and an 11ppt beat to a pre-reporting season consensus that counted among the highest ex-recession recovery bars in living memory.
As the figure shows, the bar’s even higher this quarter: 27%, with more than three quarters of the expected gain coming from Tech and Energy. As Goldman’s Ben Snider noted, the typical company in those two sectors is seen posting EPS growth of at least 30%.
At the sector level, Energy earnings are expected to more than double. Most of that’s from higher margins. Sales growth’s seen at “just” 17%, while margins are expected to expand by nearly 650bps.
As for Tech, overall sector profits are seen expanding by two-thirds on top-line growth of 40%, with 430bps of margin expansion. Comms Services EPS should grow by almost 40% thanks mostly to fatter margins.
As concentrated as earnings growth is by sector, the situation looks even more (much more) extreme when broken down by company.
There’s the table. You’ve probably seen it by now. If not, feast your eyes.
The chips, the hyper-scalers, the supermajors, the refining giant and Boeing are seen accounting for almost 70% of overall index EPS growth, up from half in Q2.
That’s not to say the “typical” company isn’t expected to report good results. The median company in the index is seen growing the bottom line by 9%, down from 14% in Q2, but still quite healthy.
Still, the concentration issue’s topical. As Snider remarked, the outsized contributions of a few companies to index profit growth is “mirror[ed]” by the worst market breadth since the dot-com bubble.
“While the market is only 2% from its all-time high, the median stock is 17% below its all-time high,” he wrote. “Both earnings and returns for the index are primarily being supported by the Info Tech sector.”
