The second-quarter earnings season has begun with expectations at their highest level in years. Analysts expect S&P 500 profits to grow around 23.6% from a year ago. What makes that unusual is that analysts normally trim their forecasts as a quarter unfolds. This time they raised them, and more companies issued upbeat guidance than at any point in a decade.
The early results are clearing that bar. Nearly nine in ten of the first companies to report have beaten their earnings forecasts. FactSet’s model, based on how reporting seasons typically unfold, suggests actual growth could land near 29%, the strongest since late 2021.
Nagham Hassan, Market Analyst at eToro, said:“This earnings season is showing that beating estimates alone is no longer enough. Expectations have been raised significantly, meaning investors are placing far greater weight on what management says about the quarters ahead. Markets are increasingly rewarding confidence and future growth, rather than simply strong historical results.”
The banks opened the season strongly. JPMorgan, Bank of America, Wells Fargo, Citigroup and Goldman Sachs all beat estimates, with Goldman delivering the strongest surprise. Trading revenues benefited from heightened market volatility following geopolitical tensions in the Middle East, while investment banking continued to gain momentum amid record levels of merger and acquisition activity. Softer-than-expected US inflation data also supported investor sentiment, helping shares of Goldman Sachs and JPMorgan move higher following their results.
Citigroup, however, highlighted how sensitive markets have become to forward guidance. Despite posting its strongest quarterly revenue in a decade and comfortably beating expectations, the stock declined after management maintained its full-year profitability target of 10–11%, despite already generating a 13% return on equity during the quarter.
“Citigroup’s reaction demonstrates that guidance is now driving share price performance more than the earnings beat itself. When expectations are already high, investors need reassurance that strong performance can continue.”
IBM illustrated the same theme from the opposite direction. The company narrowly missed expectations in its preliminary results and saw its shares fall sharply after management said customers had accelerated hardware purchases ahead of expected price increases, leaving less spending available for its mainframe business.
The impact extended well beyond IBM. Shares of Accenture, Salesforce, ServiceNow and Adobe also came under pressure as investors questioned whether higher spending on hardware could begin weighing on enterprise software budgets. While some of those stocks recovered part of their losses, the market is still assessing whether the weakness reflects a company-specific issue or a broader shift in technology spending.
Looking ahead, the energy sector is expected to deliver the strongest earnings growth this quarter, supported by oil prices remaining above last year’s levels. Technology is forecast to follow, driven largely by semiconductor companies. Meanwhile, the Magnificent Seven are still expected to outpace the broader market, although by a much narrower margin than in previous quarters, contributing to increased investor interest in sectors such as financials and healthcare.
“The busiest weeks of earnings season are still ahead, but the early pattern is already clear. Companies need to do more than outperform forecasts—they need to convince investors that momentum will continue. In this environment, outlooks are proving just as important as the numbers themselves.”
