Investment Strategy
by Larry Adam
Chief Investment Officer, Private Client Group

Key takeaways from second quarter earnings season so far

August 7, 2026

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Key takeaways:

• Tech remains the engine of growth, but revenue growth is broadening
• The S&P 500’s earnings backdrop remains exceptionally strong
• Every S&P 500 sector except health care has seen upward earnings revisions year to date

Despite spending much of the past three months moving sideways, the S&P 500 broke out to the upside this week, notching its 25th record high of the year. While leadership has shifted beneath the surface, one constant has been the strength of corporate earnings.

As we’ve noted repeatedly, earnings would need to do the heavy lifting this year, and so far, they’ve delivered. With approximately 82% of the S&P 500 market cap having reported, 2Q26 earnings are on pace to grow 49% year over year, marking the strongest quarterly gain since 2Q21.

Full-year earnings estimates have also risen 16%, a notable achievement given that earnings forecasts are historically revised lower in most years. Even more encouraging, strong results have driven broad-based upward revisions to 2027 earnings expectations, with consensus earnings per share (EPS) estimates topping $400 for the first time.

Below we highlight the key takeaways from 2Q26 earnings season and consider what comes next.

Underlying fundamentals remain strong

After delivering 28% earnings growth in the first quarter, second-quarter results have come in even stronger, reinforcing the strength in corporate fundamentals. Below we highlight several notable trends:

• AI remains the engine, but sales growth is broadening: Historically, S&P 500 revenue growth has tracked nominal economic growth. That relationship makes intuitive sense: Real economic growth drives demand for goods and services, while inflation serves as a proxy for pricing gains over time. While that relationship remains intact, secular growth themes such as artificial intelligence are increasingly boosting revenues across parts of the index. As a result, S&P 500 revenues are on track to grow 15.2% year over year in 2Q26, the strongest pace since 4Q21 and well above the 10-year average of around 7%. While the tech sector remains the primary engine of growth, with revenues projected to rise 36% year over year, growth has broadened considerably. All sectors are expected to post positive revenue growth in 2Q26, with the median increasing approximately 10% and even the slowest-growing sector, materials, expanding a healthy 4%.
• Earnings growth is doing the heavy lifting: Consensus estimates point to 49% EPS growth in 2Q26, the strongest quarterly increase since 2Q21, with full-year 2026 earnings projected to rise 32% year over year. While gains on private investments (e.g., Anthropic) have boosted reported results for several mega-cap tech companies, the underlying earnings picture remains remarkably strong. Excluding these one-time gains, S&P 500 earnings are still expected to grow 27% in 2Q26 and 25.5% in 2026, the strongest pace outside the 2021 COVID rebound and the best since the 2010 recovery from the Global Financial Crisis. This would mark a second straight quarter of 20%+ EPS growth and a seventh consecutive quarter of double-digit earnings gains, underscoring the durability of the current earnings cycle. Even more encouraging, earnings growth momentum is expanding beyond technology. Every sector except health care is on track for positive EPS growth in 2Q26, while the median sector’s earnings growth is running above 23%, its strongest level outside 2021 since 4Q10.
• Strong earnings beats and revisions trends: Of the 448 S&P 500 companies that have reported, 85% have exceeded 2Q26 EPS estimates, well above the 10-year average of 77% and the highest beat rate since 1Q21. More importantly, earnings expectations continue to move higher. Consensus 2026 EPS estimates have risen 6% since the start of earnings season and are now approximately 16% higher year to date. Even excluding one-time investment gains, revisions are still up an impressive 10%, marking the largest upward revision in the past 20 years outside the 2021 COVID recovery. For perspective, S&P 500 earnings estimates have historically been revised 2.5% lower by this point in the year. Yet in 2026, every sector except health care has seen upward revisions. Notably, the biggest increases have come from energy, communications services, tech and consumer discretionary, highlighting that earnings growth is broadening beyond the AI theme. Meanwhile, 2027 EPS estimates have climbed 13% year to date, reinforcing that the earnings story is not only strong today, but becoming increasingly durable.
• The valuation picture improves: As earnings estimates have marched higher and the S&P 500 has spent much of the last three months moving sideways, valuations have become far less demanding. The index’s forward P/E has compressed from 22.2x at the start of the year to 20.2x today, a decline of approximately 9%. In other words, despite trading near record highs, the market is actually cheaper than it was at the beginning of the year, with the forward P/E now back in line with its five-year average. A similar reset has occurred within technology, where the sector’s forward P/E has fallen from 26.6x to 22.8x, down approximately 14%, as strong earnings growth and the recent pullback have made valuations more attractive. With the valuation headwind fading, the backdrop for further market gains has become more constructive.

Final stretch of earnings season: AI and the consumer in focus

For the remaining four weeks of the 2Q26 earnings season, investor focus will stay squarely on AI and the consumer. NVIDIA (Aug. 26) and Broadcom (Sept. 2) will serve as important gauges of AI infrastructure demand and spending trends, while Target (Aug. 19) and Walmart (Aug. 20) should offer valuable insight into consumer behavior, including discretionary spending, value-conscious purchasing, and the overall resilience of the US consumer as we head into the second half of the year.

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