Oct 2, 2026
A calm index, a restless market
What risks? Earnings are up and to the right
At the start of 2026, few investors expected an energy shock, a monetary policy pivot and the highest level of interest rates since 2002. Fewer still expected the S&P 500 to climb roughly 15% despite those headwinds. The reason is simple: Earnings have been far stronger than anyone anticipated.
The earnings super cycle remains intact. And more importantly, it’s becoming broader. Even as investors focus on valuation, policy debates or macroeconomic risks, over longer periods of time, it’s corporate earnings that ultimately drive the equity markets. And today, that backdrop remains the strongest in almost two decades.
S&P 500 earnings growth is expected to increase approximately 29% year-over-year in the third quarter. If realized, it would mark eight consecutive quarters of double-digit earnings growth, the longest streak since the rebound that followed the Global Financial Crisis.
Driving the upside
In the second quarter, S&P 500 earnings per share (EPS) grew 52% year-over-year. Even excluding one-time gains that boosted results for some large technology firms, that figure sits at 34%.
Earnings growth continues to beat expectations
S&P 500 quarterly EPS growth, %
Source: FactSet. Data as of October 5, 2026.
Note: Ex-Gains excludes one-time gains to net income from Amazon, Alphabet, and Microsoft.
Past performance does not guarantee future results. It is not possible to invest directly in an index.
Note: Ex-Gains excludes one-time gains to net income from Amazon, Alphabet, and Microsoft.
Past performance does not guarantee future results. It is not possible to invest directly in an index.
Despite initial concerns around slowing economic activity, expectations for third-quarter sales growth have steadily moved higher and now sit at 12.1%—an estimate that’s only increased during the course of the summer, even as interest rates marched higher. That’s well above what would typically be expected with the current pace of nominal economic growth. It reflects continued strength in artificial intelligence infrastructure spending and technology investment.
At the same time, companies continue to demonstrate an ability to protect profitability. That’s most visible in corporate margins. In the second quarter, net profit margin sat at 17%. In the third quarter, a modest decrease to 15% is expected, which still leaves profitability well above both last year’s level and the five-year average of 12.6%.
Margin expansion has been accelerating
S&P 500 net profit margins, %
Source: FactSet. Data as of October 5, 2026.
Past performance does not guarantee future results. It is not possible to invest directly in an index.
Past performance does not guarantee future results. It is not possible to invest directly in an index.
Not just tech
While technology continues to lead the earnings story, it is no longer the only story. The information technology sector now makes up ~40% of the broader S&P 500, so strong tech reports will naturally have an outsized influence on index-level results. But beneath the surface, earnings growth is no longer confined to a small group of winners. While five of the 11 S&P 500 sectors are expected to deliver growth above 10% this quarter, as many as seven sectors have the potential to exceed that threshold.
This is especially important as the Magnificent 7 have underperformed the broader market, rising roughly 12% this year compared to the S&P 500’s ~15% gain.1And yet, earnings for that group are expected to rise approximately 59% this year while growth for the remaining 493 companies in the index is expected to be about 23%.
That’s still a sizable gap, but the fact that earnings growth is expanding beyond a handful of companies that have dominated index returns and into a broader set of sectors and industries is healthy.
Earnings strength is broadening beyond the Mag 7
Magnificent 7 vs. remaining 493 earnings growth, %
Source: FactSet. Data as of October 5, 2026.
Note: The Magnificent 7 is an equally weighted basket of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
Past performance does not guarantee future results. It is not possible to invest directly in an index.
Note: The Magnificent 7 is an equally weighted basket of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
Past performance does not guarantee future results. It is not possible to invest directly in an index.
Estimates and early reporters
What’s perhaps most notable is what’s happened to analyst estimates. The year traditionally begins with optimistic profit forecasts that tend to gradually drift lower as the year progresses. This year has shown the opposite. Earnings expectations have been revised materially higher, not lower, as companies continue to exceed forecasts by significantly wider-than-expected margins.
Earnings estimate revisions are bucking the trend
S&P 500 year-to-date earnings per share estimate revisions by calendar year (CY), %
Source: FactSet. Data as of October 5, 2026.
Early earnings results are reinforcing that narrative, with the vast majority already beating estimates. As a leading indicator of what to expect throughout the rest of upcoming third-quarter earnings season, it offers an encouraging signal for the broader reporting season ahead.
The third-quarter corporate earnings season will determine whether companies can once again clear a high bar. Expectations have risen, estimates have moved higher and investors are paying close attention to guidance for the remainder of the year. Can the blockbuster gains continue? If the early signals are any indication, the story that has defined the stock market in 2026 will likely remain intact: Corporate America continues to deliver earnings growth that is stronger, broader and more resilient than expected.
Important Information
Earnings strength is spreading beyond the handful of mega-cap names that have dominated index-level returns.
Christopher Baggini
Global Head of Equity Strategy
Published Oct 9, 2026
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