Insight & Outlook: Fidelity Market Signals Weekly

Historic earnings growth is giving investors a reason for optimism

Corporate profit growth hasn’t been this strong in more than four years, and it’s arguably the biggest catalyst behind investment and economic growth expectations.

Quarterly S&P 500 earnings are stronger than at any point since 2021, when the U.S. economy was recovering from the depths of the COVID-19 pandemic. The blended year-over-year earnings growth rate for the S&P 500 now stands at 50.4%.

This matters because earnings support equity valuations and are a key driver of business investment, hiring, and economic growth. The latest results suggest that many companies continue to generate solid profits despite ongoing concerns about economic growth, interest rates, and other headwinds.

The story extends beyond the 50.4% growth rate. Equally encouraging is that revisions were driven up as companies reported, not marked down. Analysts typically trim first-month estimates by about 1%; this quarter they lifted the calendar-year 2026 bottom-up estimate by 3.2% in July, and each of the 11 sectors now carries higher earnings than they did at quarter’s end.

Also, the strong upward revisions are on the heels of multiyear earnings strength. This is not typical. In the past, revision waves of this magnitude have tended to cluster around recoveries off depressed bases—quarters coming out of a downturn, when the prior year set an artificially low bar.

Just as important, 10 of 11 eleven sectors posted year-over-year earnings growth, eight of them at double-digit rates (Exhibit 1). This is different than what investors experienced through much of the prior two years, when a narrow set of leaders carried the index.

A common objection

If you’re looking for a catch, here it is: Two names—Alphabet and Amazon—inflated the headline earnings growth figure significantly, and largely due to non-operating valuation gains.

But focusing solely on those two companies overlooks the breadth of earnings growth across the index. Strip these two companies out and S&P 500 earnings growth still stood at 32%, marking the seventh straight quarter of double-digit growth. The two-company critique trims the headlines, but it does not overturn the story.

We could make an alternate argument by excluding two alternate S&P 500 components.

Health care is the lone sector in the red, down 6.7%. However, the sector’s decline is dominated by only two companies, Gilead Sciences and Merck. The reported figures for these companies reflect one-time charges tied to acquisitions and in-process research and development rather than any deterioration in the underlying business. Exclude those two health care names, and the sector’s growth would be greater than 17%. Then all 11 economic sectors would have reflected earnings growth.

Will this last?

Are things just too good? Could earnings be at a peak? Analysts indeed see profits decelerating—to 27.4% in Q3, 25.2% in Q4, and about 13.6% for calendar year 2027.

However, part of that fade is mechanical, as the one-time Alphabet and Amazon gains roll off. Lower is not the same as low. Even the decelerated figures stand at or above the 5- and 10-year average growth rates of roughly 15.2% and 11.2%, with revenue running near 11% against long-run averages closer to 8% and 6%.

What it means for advisors

Beyond the earnings growth, there’s a lot of dispersion of both earnings and performance, which can be positive for active managers.

From an earnings perspective, individual EPS surprises spanned an enormous range in Q2—from beats approaching 500% at the top to misses near 40% at the bottom—while revisions pull sectors in opposite directions.

And looking at performance, our teams are seeing greater-than-average dispersion since 1994 on two important things we watch:

• monthly return dispersion (the variability of individual stock returns relative to the index)
• stock-level return correlation (a measure that shows individual stocks in the S&P 500 are moving independently of each other)

Layer on a policy backdrop that has grown harder to read, and there appear to be opportunities for active managers with strong research capabilities to add value versus the index result in this market environment.

Earnings remain the CMSG’s primary bellwether, and the signal continues to be constructive.

We’re seeing broad-based earnings growth across the U.S. equity market, while elevated dispersion in both earnings and returns suggests opportunities remain for active investors as we move through the final months of 2026.