The Big Picture
Briefing.com Summary:
*Second quarter earnings crushed lowered expectations and even exceeded the original forecast.
*The number of upward earnings revisions has surged since the reciprocal tariff rollback and the passage of the One Big Beautiful Bill Act.
*At 22.5x forward twelve-month earnings, the market relies on sustained earnings growth to justify record highs
The second-quarter earnings reporting period isn't quite done, but it nearly is, with 464 S&P 500 companies having reported their results thus far, according to FactSet. We posited in our earnings preview last month that the S&P 500 would hurdle a low earnings bar and that the only question was, by how much?
We have the answer.
The blended growth estimate as of July 11 was 4.6%, down from 9.2% on March 31. Today, the reported growth rate for the second quarter is 10.8%, and the blended growth rate (accounts for actuals and estimates of companies that have yet to report) is 11.6%. In other words, S&P 500 companies did a high jump over that lowered bar. They kept on running, too, with some generally upbeat guidance that was driven by the mega-cap companies.
The earnings revision trend, though, isn't just a "Magnificent 7" story. It is much more than that, which is an important distinction for a market that rides on earnings estimate trends.
Inflection Points
Looking at the chart below, which shows upward and downward earnings revisions for 2025 and 2026, an inflection point was reached soon after the president dialed back his reciprocal tariff plan in April. The next inflection point came on July 4, which is when the "One Big Beautiful Bill Act" was signed into law.
The OBBA, among other things, created a permanent extension of the lower individual tax rates that were enacted under the 2017 Tax Cuts and Jobs Act and made permanent the 100% bonus depreciation for qualified business property that is in service after January 19, 2025.
To be clear, on April 17 there were 94 upward revisions for 2025 and 348 downward revisions. On July 4 there were 166 upward revisions and 141 downward revisions. Today, the number of companies with upward revisions stands at 344, while the number of companies with downward revisions is just 133. Similar trends have prevailed for the 2026 outlook.
Briefing.com Analyst Insight
There has been some momentum behind the upward revisions. Alas, there has also been some upward momentum in the stock market, which has produced new record highs for the S&P 500 and Nasdaq Composite.
The run to those record highs coincides with the estimate trend, as reflected in the chart below.
This is also a good illustration as to why a market trading at 22.5x forward twelve-month earnings, which is a 22% premium to the 10-year average, needs the continued earnings growth to subsist in that thin air. It is like oxygen. Take the oxygen away, and a lot more risk gets introduced into the climb.
Fortunately, it does not appear as if the market is going to be deprived of its needed oxygen. Calendar 2025 and calendar 2026 earnings estimates are lower than they were at the start of the year, but both are rising again, sitting at $266.34 and $301.23, respectively.
The latter translates into 13.1% year-over-year growth. That is a solid growth number that will be expected to move higher if the Fed lowers rates, tariff inflation remains at bay, the dollar continues to depreciate, AI-related productivity gains begin to accrue, and the labor market remains relatively solid.
There are a lot of "ifs" in that future, but there hasn't been a serious development yet to undermine the market's earnings growth outlook.
Accordingly, the earnings estimate trend remains the market's friend and a fundamental source of support for buy-the-dip efforts. That dynamic will shift if, and when, the estimate trend breaks.
