S&P 500 Rally Built on Thin Profit Margins

The S&P 500's recent rally is built on record corporate profits, but stock prices have outpaced underlying earnings growth.

According to CNBC, corporate profits reached a postwar record share of the US economy in Q2 2026, with EPS for the S&P500 increasing by more than 50% YoY. This represents one of the strongest periods ever in terms of earnings growth.

Much of Alphabet's and Amazon's net income surge stems from unrealized gains on equity holdings, not core operations, creating a profit-cash flow divergence.