The current earnings growth rate for the S&P 500 for the second quarter is 23.6%, which would mark the 2nd consecutive quarter of year-over-year earnings growth above 20% for the index. Given that most S&P 500 companies report actual earnings above estimates, what is the likelihood the index will report earnings growth of 23.6% for the quarter?
Based on the average improvement in the earnings growth rate during the earnings season, the index will likely report earnings growth above 29% for Q2. This would be the highest earnings growth rate reported by the index since Q4 2021 (32.0%).
When companies in the S&P 500 report actual earnings above estimates during an earnings season, the overall earnings growth rate for the index increases because the higher actual EPS numbers replace the lower estimated EPS numbers in the calculation of the growth rate. For example, if a company is projected to report EPS of $1.05 compared to year ago EPS of $1.00, the company is projected to report earnings growth of 5%. If the company reports actual EPS of $1.10 (a $0.05 upside earnings surprise compared to the estimate), the actual earnings growth rate for the company for the quarter is now 10%, five percentage points above the estimated growth rate (5% + 5% = 10%).
In fact, the actual earnings growth rate has exceeded the estimated earnings growth rate at the end of the quarter in 37 of the past 40 quarters for the S&P 500. The only exceptions were Q1 2020, Q3 2022, and Q4 2022.
Over the past ten years, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 7.4% on average. During this same period, 76% of companies in the S&P 500 have reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has increased by 6.2 percentage points on average (over the past ten years) due to the number and magnitude of positive earnings surprises. If this average increase is applied to the estimated earnings growth rate at the end of Q2 (June 30) of 23.2%, the actual earnings growth rate for the quarter would be 29.4% (23.2% + 6.2% = 29.4%).
Over the past five years, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 7.0% on average. During this same period, 78% of companies in the S&P 500 have reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has increased by 6.4 percentage points on average (over the past five years) due to the number and magnitude of positive earnings surprises. If this average increase is applied to the estimated earnings growth rate at the end of Q2 (June 30) of 23.2%, the actual earnings growth rate for the quarter would be 29.6% (23.2% + 6.4% = 29.6%).
Over the past four quarters (Q2 2025 through Q1 2026), actual earnings reported by S&P 500 companies have exceeded estimated earnings by 9.2% on average. During these four quarters, 80% of companies in the S&P 500 reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has increased by 8.5 percentage points on average (during the past four quarters) due to the number and magnitude of positive earnings surprises. If this average increase is applied to the estimated earnings growth rate at the end of Q2 (June 30) of 23.2%, the actual earnings growth rate for the quarter would be 31.7% (23.2% + 8.5% = 31.7%).
Thus, using the most conservative average improvement of these three periods, the index would report year-over-year earnings growth of 29.4% for Q2.
How are the numbers trending to date? Of the 18 S&P 500 companies that have reported actual earnings for Q2 2026 through July 10, 89% have reported actual EPS above the mean EPS estimate. In aggregate, actual earnings reported by these 18 companies have exceeded estimated earnings by 14.5%. As a result, the earnings growth rate for the S&P 500 has increased by 0.4 percentage points since June 30 (to 23.6% from 23.2%).
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