S&P 500 companies concluded second-quarter earnings reporting with aggregate profit growth of 52% compared to the prior year, according to data released on August 20. The technology sector led the advance with a 74% profit increase. Much of this growth stemmed from substantial mark-to-market gains recognized by major corporations on their investment portfolios.
Alphabet recorded a $77.1 billion unrealized gain on equity securities during the quarter, while Amazon recognized $53.4 billion in non-operating pre-tax other income primarily attributable to its stake in artificial intelligence company Anthropic. Excluding these mark-to-market gains, S&P 500 second-quarter profit growth would have reached 33% according to LSEG research, still representing the strongest quarter since 2021. Goldman Sachs analysts noted that AI infrastructure stocks accounted for roughly one-third of S&P 500 earnings per share growth in the period.
Wall Street strategists expressed caution regarding the sustainability of earnings dependent on these investment gains. Savita Subramanian at BofA Securities noted in a client communication that mark-to-market gains can reverse as quickly as they accumulate, and that increasing earnings reliance on largely uncontrollable factors reduces earnings visibility. Michael O’Rourke, chief market strategist at JonesTrading, suggested the strong earnings growth may set expectations for potential disappointments in subsequent periods.
Beyond technology and AI-related investments, earnings strength was broad-based. Seven of the S&P 500’s 11 major sectors posted double-digit year-over-year earnings growth in the second quarter. Energy sector earnings grew approximately 143% for the period. With results reported from more than 450 S&P 500 companies as of Friday, approximately 85% were beating analyst expectations. Third-quarter earnings projections have also strengthened, with analysts now forecasting 29.2% profit growth for S&P 500 companies, up from 27.6% estimated at the start of July.
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