S&P 500 Earnings Soar to Five-Year High
The S&P 500 companies are on track to deliver their strongest earnings growth in five years. According to FactSet's latest earnings insights, 88% of the index has reported, and blended earnings growth for the second quarter stands at 50.4%. This would be the strongest quarterly earnings growth since the second quarter of 2021, when profits surged 91.6%, and is driven by strong revenue growth, which is accelerating to 15.0%, its highest level since the fourth quarter of 2021.
Notably, the S&P 500's blended net profit margin has climbed to 16.9%, a record high since FactSet began tracking the measure in 2009. The previous record was 14.8%, set just one quarter ago. Despite these numbers, the SPDR S&P 500 ETF Trust (SPY) is trading at 20 times its forward 12-month earnings, marginally higher than its 10-year average of 19x.
The earnings growth is broad-based across sectors, with ten of the S&P 500's 11 sectors reporting year-over-year earnings growth. Energy, Communication Services, Consumer Discretionary, Information Technology, and Materials are leading the charge, with eight sectors posting double-digit growth. Companies are also beating expectations by an unusually wide margin, with aggregate earnings running 29.2% above estimates.
However, a closer look reveals that Alphabet and Amazon account for about 71% of the increase in dollar-level S&P 500 earnings since June 30. Excluding them, second-quarter earnings growth falls to 32.0%. Despite this, even after stripping out their contributions, earnings growth would still be extraordinary at 32%, marking the second consecutive quarter above 25% and the seventh straight quarter of double-digit growth.