The earnings anchor

After consolidating for three months, the S&P 500 jumped recently, reaching a new all-time high following the easing of tensions in the Middle East and solid earnings reports.

With 80 percent of the index’s market capitalisation having reported Q2 earnings thus far, highlights include:

• S&P 500 earnings per share (EPS) growth is pacing at 31.6 percent year over year, according to Bloomberg. This is much higher than the 23.2 percent consensus forecast just before the earnings reporting season began in mid-July and is a couple percentage points above growth in the prior quarter. Outside of post-recession rebounds, earnings rarely climb at such a lofty rate.
• Even when paper investment gains reported by large AI firms are excluded, results are robust. S&P 500 EPS growth would still be above 20 percent, according to Fundstrat Global Advisors.
• 86 percent of companies have exceeded consensus earnings estimates, the highest level since 2021 when expectations were unusually depressed during the COVID-19 crisis.
• Once again, the ongoing AI infrastructure buildout is the primary reason for strong Q2 results, with the semiconductor and semiconductor capital equipment segment growing over 135 percent year over year.
• Energy and Materials are also recording unusually high earnings gains at about 145 percent and 40 percent, respectively.

When we slice and dice net income data – another earnings measure – it becomes clear that the Q2 strength is not only being driven by AI, Energy and Materials.

When the large AI segment is excluded from the S&P 500 data, net income of all other sectors combined is on pace to rise 16.7 percent year over year in Q2, according to Bloomberg – well above average.

While that rate includes outsized Energy and Materials growth, those sectors combined represent less than five percent of S&P 500 market capitalisation, so other market segments are also pulling their weight. Diverse sectors such as Financials, Communication Services, Utilities and Industrials are on pace to grow net income at double-digit rates in Q2.

Strong annual growth forecasts

Future earnings prospects are typically even more important for the market’s performance than past results.

The Bloomberg consensus EPS forecast currently calls for US$352 (26.2 percent year-over-year growth) in full-year 2026. Since 2003, only two years exceeded this growth rate: during the post-financial crisis rebound in 2010 and after the acute COVID-19 crisis phase in 2021.

The $409 EPS forecast in 2027 has surged from $358 at the beginning of the year. Consensus estimates call for double-digit growth for the Information Technology, Healthcare, Industrials, Consumer Discretionary and Materials sectors next year.

Strong earnings anticipated in the next two years, but at a slower growth rate than in 2026

S&P 500 past earnings per share (dark blue) and consensus forecasts (light blue)

Source – RBC Wealth Management, Bloomberg; data as of 8/6/26

The chart shows S&P 500 earnings per share (EPS) for 2002 through 2025, and consensus estimates for 2026 through 2028. Earnings per share were: 2022, $223; 2023, $225; 2024, $247; 2025, $279. The consensus forecasts for EPS are $352 (26.2% year-over-year growth) in 2026, $409 (16.4% growth) in 2027, and $469 (14.6% growth) in 2028.

Even if the 2027 S&P 500 earnings estimate ends up pulling back somewhat, like it often has heading into the full calendar year, that wouldn’t make us turn bearish on the market. We just need to see the economy keep humming along and decent double-digit earnings growth to maintain a constructive outlook.

While it’s far too soon to bank on the 2028 consensus earnings projection of $469 per share (14.6 percent growth), the figure illustrates that bottom-up Wall Street industry analysts are collectively optimistic. Whether this actually has the potential to pan out will take some time to gauge.

Earnings convergence ahead?

From our vantage point, the big question for the quarters ahead – and the market in general – is whether the gap between Tech sector earnings growth and the rest of the market (S&P 500 excluding Tech) will narrow, similar to what the consensus of Wall Street analysts is currently projecting.

If this trend looks likely to play out in the coming months and quarters, we think institutional investors will be inclined to further balance out their Tech and non-Tech positions, like they have so far this year.

This underscores one reason why we think it’s important for individual investors to have diverse sector and industry exposures.

Additionally, to manage risk, we think investors should be vigilant about single-stock and industry holdings in portfolios by bringing them back to reasonably sized positions if they’ve drifted well out of bounds.

The gap between Tech sector and non-Tech sector earnings expected to narrow

S&P 500 actual net income growth and consensus forecasts

• Information Technology sector
• S&P 500
• S&P 500 excluding Information Technology

Source – RBC Wealth Management, Bloomberg; data as of 8/6/26

The line chart shows actual corporate earnings growth rates from Q1 2022 through Q1 2026 and consensus earnings growth forecasts from Q2 2026 through Q4 2027 for three segments of the U.S. market: the S&P 500 Information Technology sector, the S&P 500 Index as a whole, and the S&P 500 excluding the Information Technology sector. Growth for all three started 2022 between 9.1% and 11.9% and then declined into negative territory with the lowest levels occurring in the first half of 2023; the Tech sector reached -18.7% in Q1 2023 and the others bottomed between -4.8% and -5.6% in Q2 2023. All three rose into positive territory thereafter, reaching between 6.9% and 8.9% in Q4 2023. Then growth for the Tech sector became stronger, and from Q1 2024 through Q3 2025 was between 21% and nearly 26%. During that same period, growth for the S&P 500 bounced between 7% to 13.7%, S&P 500 excluding the Tech sector bounced between 2.9% and 12%, and growth for the S&P 500 was slightly higher than the S&P 500 excluding Tech. The consensus forecast is for earnings growth to peak for Tech and the S&P 500 in Q2 2026 at 72.8% and 32.4%, respectively. Growth for the S&P 500 excluding Tech is expected to be 20.5% in the same quarter. After that, the growth rates are forecast to narrow into the later part of 2027. The consensus forecast for the final data point in Q4 2027 is 26.6% for the Tech sector, 18% for the S&P 500, and 13.5% for the S&P 500 excluding Tech.

Risks to the profit outlook

Healthy U.S. economic and earnings growth prospects lead us to believe that further equity gains are likely, and that the bull market cycle will persist, as discussed in this recent article.

But there are almost always things that could get in the way or at least generate volatility. We’ve got our eyes on these obstacles:

• Transitions to new Federal Reserve chairs have coincided with choppy conditions for the stock market at times, according to RBC Capital Markets.
• Any forthcoming Fed interest rate hikes – whether later this year and/or next year – could hold back or pressure equity price-to-earnings multiples. Inflation and jobs data in the coming weeks and months will be closely scrutinised by the Fed and market participants.
• The Middle East conflict dragging on and another round of Strait of Hormuz shipping constraints would be problematic for crude oil prices and domestic and global inflation. RBC Capital Markets’ commodity strategist and regional expert remains skeptical that a grand, durable diplomatic agreement can be forged.
• The U.S. midterm elections in November have the potential to inject uncertainty and prompt a pullback sometime before or after Election Day.
• Last, but certainly not least, a lot is riding on AI capital spending and monetisation trends. As this article points out, “… the massive data centre build-out has further to run, according to most industry observers, but the picture is getting more crowded, complicated and expensive.”

As long as these challenges don’t become acute problems for the economy that would increase recession risks or cause one to actually unfold, we think earnings will grow at a healthy clip and the U.S. stock market can continue to climb the wall of worry. We suggest maintaining a Market Weight position in U.S. equities.