For the first time since 1955, S&P 500 earnings are 14% above the long-term trend

TL;DR

• A U.S. equity earnings revision report shows that S&P 500 EPS is 14% above a trend channel spanning over 90 years, the first time this has occurred since 1955.
• Public FactSet data indicates that S&P 500 Q2 earnings growth is approximately in the 23% to 25% range.
• Earnings growth is broadening from large-cap tech stocks to more companies, though divergence remains across sectors, and elevated profit baselines have also raised the bar for subsequent earnings delivery.

The U.S. stock market's high valuations are gaining a stronger fundamental underpinning: corporate earnings are not only maintaining growth, but analysts are also continuously revising future expectations upward.

A U.S. equity earnings revision report aggregating data from multiple institutions shows that S&P 500 earnings per share is now approximately 14% above a trend channel formed from over 90 years of historical data, the first time such a high level of deviation has been reached since 1955. The report also notes that the proportion of companies beating earnings estimates, the magnitude of sales surprises, and analysts' upward earnings revisions are all at historically strong levels.

This data explains why the U.S. stock market has remained supported despite high valuations. Over the past year, AI investment, interest rate expectations, and liquidity have jointly driven risk assets higher; as the index climbs further, relying on narrative alone is no longer sufficient—corporate profits must continue to grow to absorb higher valuations.

But strong earnings also have a flip side: when profit levels are already significantly above long-term trends, market expectations rise in tandem. Companies merely meeting forecasts may no longer be enough to push share prices higher; once revenue, margins, or forward guidance fall short of expectations, the pressure on elevated valuations becomes greater.

S&P 500 quarterly EPS has risen above the long-term trend channel. The report notes it is 14% above the trend channel spanning over 90 years, the first time since 1955

How Strong Are Earnings: S&P 500 EPS Reaches a Rare Level in 70 Years

The report's assessment of current earnings strength is primarily based on three dimensions.

First, the absolute level of S&P 500 EPS continues to rise and has clearly broken above the long-term trend range. According to Deutsche Bank calculations cited in the report, multiple consecutive quarters of robust earnings growth have pushed S&P 500 EPS 14% above the long-term trend channel.

Second, actual corporate performance has generally surpassed analyst forecasts. The report states that the breadth of S&P 500 companies beating earnings estimates is near historical highs, and the overall magnitude of sales surprises has also risen to a five-year high.

Third, earnings expectations have not been revised downward as is typically the case after the earnings season begins—instead, they have continued to rise. The report shows that in July, analysts raised the S&P 500 quarterly bottom-up EPS estimate by 0.3%. Historically, analysts typically lower forecasts in the first month of a quarter to reflect more cautious management guidance and macroeconomic assumptions.

Together, these signals indicate that the current U.S. stock market move is not purely driven by valuation expansion. Corporate profits themselves are providing support, and actual performance continues to exceed prior expectations.

However, "strong earnings" does not mean all data points can be used interchangeably directly.

One eye-catching figure in the report is that S&P 500 Q2 earnings growth reached 33.2%, a level rarely seen in over 30 years, second only to the special recovery phases following the financial crisis and the pandemic.

It is worth noting that in the public data cited in this article, FactSet projected on July 2 that S&P 500 Q2 earnings would grow 23.3% year-over-year; Axios cites FactSet's figure as 22.5%, while Bloomberg's figure is approximately 25%. Therefore, a more accurate statement is: under publicly available data, S&P 500 Q2 earnings growth is roughly in the 23% to 25% range; the 33.2% figure in the report likely uses different timing, sample scope, or adjustment methodology.

Nevertheless, even at the 23% to 25% range, S&P 500 Q2 earnings growth remains at a relatively high level, and the profit side continues to provide fundamental support for the index.

Where the Strength Lies: Earnings Beats and Rising Profit Forecasts

The value of this round of earnings improvement lies not only in the strong Q2 numbers, but also in the simultaneous rise of both actual performance and future expectations.

Typically, after companies enter the earnings season, analysts gradually lower forecasts based on company guidance, cost changes, and macro risks. But this earnings season has seen the opposite: actual earnings have consistently beaten expectations, and analysts have subsequently continued to raise forward EPS.

According to Carson data cited in the report, at the start of the year, the market expected S&P 500 earnings growth of approximately 13% in 2026; that expectation has now risen to nearly 28%. This figure should be clearly attributed as the institutional estimate cited in the report, rather than a unified consensus across the public market.

The more important shift is that U.S. stock bulls now rely not only on rate cut expectations, liquidity, or the AI narrative, but also on the support of upward earnings revisions.

As long as corporate profits continue to beat forecasts and analysts keep raising future earnings expectations, high valuations can be gradually absorbed through profit growth. Conversely, once earnings revisions stop rising, the market loses a key support, and valuation concerns will come back to the forefront.

The proportion of S&P 500 companies beating earnings estimates has risen to near historical highs, and the overall magnitude of sales surprises has also climbed to a five-year high

Has It Broadened: Tech Stocks Remain the Engine, More Companies Are Joining In

Whether strong earnings can persist also depends on whether growth is spreading from a handful of large-cap tech companies to the broader market.

FactSet's July 20 breakdown data shows that the S&P 500's overall Q2 blended earnings growth rate was 24.7%, while the 493 companies excluding the "Magnificent Seven" posted earnings growth of 22.8%. This means index-level earnings growth is not entirely driven by a few mega-cap tech companies.

But the pull from heavyweight stocks still cannot be ignored. If Micron and Nvidia are further excluded, S&P 500 Q2 earnings growth would drop to 16.8%. The report also points out that after stripping out star companies and their one-time gains, the median S&P 500 company's earnings growth is approximately 13.8%.

These numbers point to a more balanced assessment: earnings growth has broadened, but large-cap tech and semiconductor companies remain important engines.

Sector-level data also requires measured interpretation.

Deutsche Bank's figures indicate that all S&P 500 sectors are on track for positive growth for a second consecutive quarter, with 8 of 11 sectors potentially achieving double-digit growth. FactSet's public data as of July 2, however, states that 10 of 11 sectors are expected to post year-over-year earnings growth, with healthcare being the only sector expected to see a decline; on the revenue side, all 11 sectors are expected to post year-over-year growth.

From this, it is clear that earnings improvement has covered most sectors, but divergence across sectors still exists.

It is worth noting that revenue growth indicates overall corporate sales are still expanding, but final profits are also affected by factors such as wages, raw materials, depreciation, product mix, pricing power, and one-time gains or losses. The same revenue growth rate can translate into very different profit outcomes across industries.

The real value of earnings broadening lies in the fact that the S&P 500's profit base is widening, and the index is no longer entirely dependent on a few tech giants. But this is not yet sufficient to prove that all companies and sectors have entered a synchronized growth cycle.

Under the report's metrics, earnings growth is accelerating across most S&P 500 sectors, and the contribution of companies outside tech and large-cap growth stocks to index-level earnings growth is also expanding.

Why Stronger Earnings Raise the Earnings Bar Higher

Strong earnings can support valuations, but they also create a higher comparison base.

According to the report's calculations, S&P 500 EPS is already 14% above the 90-plus-year trend channel. This does not mean corporate earnings are about to peak, nor can it directly imply that the market is about to correct; rather, it indicates that current profit levels are significantly above long-term trends, and future year-over-year growth will face stronger high-base pressure.

When earnings expectations have been revised up from approximately 13% at the start of the year to nearly 28%, the market has already priced in fairly optimistic growth assumptions in advance. The test companies now face is no longer just "whether there is growth," but whether the pace of growth can continue to outpace the continuously rising forecasts.

The report shows that the S&P 500's full-year earnings growth expectation has risen from approximately 13% at the start of the year to nearly 28%

This also means that the earnings season could present a seemingly contradictory situation: overall earnings remain strong, yet individual stocks may not rise on the back of earnings growth.

The reason is that stock prices reflect the gap between actual results and market expectations. If the market already expects a company's revenue to grow 20%, an actual 20% increase merely meets expectations; if margins, orders, or forward guidance fall slightly short of what the market had envisioned, share prices can still decline.

High earnings also make valuations more sensitive to bad news. Slowing sales growth, margin pressure from costs, AI capital expenditure returns below expectations, or management issuing more conservative guidance for the coming quarter can all trigger more pronounced valuation adjustments.

Therefore, stronger earnings do not mean lower market risk. They mean the fundamental support is more solid, but they also mean investor demands are higher.

In July, analysts raised the S&P 500 quarterly EPS estimate by 0.3%; historically, analysts typically lower earnings estimates in the first month of the quarter.

What to Watch Next: Revenue, Margins, and Whether Upward Earnings Revisions Can Persist

Going forward, determining whether U.S. corporate earnings can continue to support the index requires attention to four more specific variables.

The first is revenue growth. Profits can be improved in the short term through cost controls, buybacks, or one-time gains, but revenue better reflects whether demand is genuinely expanding. If sales growth begins to decelerate noticeably, the sustainability of earnings expansion will also come into question.

The second is profit margins. Current earnings growth is partly driven by the high margins and scale effects of large-cap tech companies. If wages, energy, depreciation, or financing costs rise, revenue growth may not translate proportionally into profits.

The third is the return on AI-related capital expenditures. Large-cap tech companies are still pouring enormous sums into building data centers, purchasing chips, and expanding cloud infrastructure. Investors need to see these expenditures gradually convert into cloud revenue, software subscriptions, advertising efficiency, or enterprise AI service revenue.

The fourth is the direction of earnings revisions. Whether analysts continue to raise EPS forecasts for 2026 and 2027 may matter more than a single quarter's earnings growth rate. As long as expectations continue to move upward, high valuations can maintain their support; if earnings revisions peak or even turn downward, the market's tolerance for valuations will also decline rapidly.

Overall, the most positive signal from this round of U.S. earnings is the simultaneous improvement in near-term results, growth breadth, and future expectations. The index's rise does not rely solely on liquidity and the AI theme—corporate profits themselves are providing support.

But this support is already built on exceptionally high profit levels and market expectations.

The stronger the earnings, the more justification there is for sustaining valuations; the higher the expectations, the greater the cost of any earnings miss. What ultimately determines whether U.S. stocks can continue to move higher is no longer whether companies can deliver a "decent" earnings report, but whether revenue, margins, and forward guidance can continue to exceed an increasingly high market bar.