S&P 500 earnings surge 47% as tariff refunds boost corporate profits

S&P 500 companies posted 47.4 percent earnings growth in Q2, the strongest in five years, as tariff refunds and consumer spending lifted profits.

"Investors will want another beat-and-raise quarter, but more importantly, confirmation that the massive AI infrastructure spending cycle remains alive and well," Jay Woods, chief market strategist at Freedom Capital Markets, said.

Across the index, 86 percent of companies beat EPS expectations and 77 percent topped revenue forecasts, according to Oppenheimer data. Blended Q2 earnings growth stands at 47.4 percent year over year on 14 percent revenue growth, with only healthcare among the 11 sectors reporting a year-over-year decline. For Q3, earnings growth estimates rose from 14 percent in January to 21.7 percent, with revisions broadening beyond technology into energy and other cyclical sectors. The U.S. Bureau of Economic Analysis confirmed the economy expanded at a 1.5 percent annualized rate in Q2, while corporate profits surged 8.2 percent in the quarter, accelerating sharply from 0.5 percent in Q1.

JPMorgan raised its 2026 S&P 500 target to 8,000 from 7,800, implying about 3 percent upside from last week's close near 7,800. The index first cleared 5,000 in February 2024, and after a March drawdown of more than 8.5 percent tied to the U.S.-Iran conflict, it has recovered to record highs. Nvidia's quarterly report Wednesday, with expected revenue above $92 billion, will test whether the AI infrastructure spending cycle that has driven much of the earnings surge remains intact.

Alphabet raised its capex guidance to $195 billion to $205 billion, a $15 billion increase at the midpoint, while forecasts point to Magnificent Seven AI infrastructure spending accelerating toward $750 billion in 2026. The SPDR S&P 500 ETF (SPY) trades at $765.91, about 7 percent above its GF Value estimate of $715.63, with a trailing P/E of 23.14 times, according to GuruFocus data. The 10-year Treasury yield sits near 4.71 percent, while WTI crude trades at $85.15 a barrel after new U.S. sanctions on Iran.

The earnings momentum has broadened beyond mega-cap technology, with Q3 estimates revised upward from 14 percent in January to 21.7 percent as energy and other cyclical sectors joined the upgrade cycle. For investors, the strong profit growth supports further equity gains, but the S&P 500's 7 percent premium to intrinsic value suggests limited margin of safety at current levels. The next GDP estimate is due September 30, and Nvidia's report Wednesday afternoon will be the key test — the chipmaker is expected to deliver more than $92 billion in quarterly revenue, and any disappointment could pressure the AI trade that has powered much of the index's gains.

This article is for informational purposes only and does not constitute investment advice.