Weekly Wisdom: Earnings Momentum Expands Beyond Mega Caps
Market Leadership Continues to Broaden
One of the biggest takeaways from this earnings season has been the continued broadening of market leadership. While artificial intelligence and the largest technology companies remain important drivers, strength is no longer confined to just a handful of mega-cap names. The Equal Weight S&P 500 has pushed to fresh highs while improving its relative performance, increasing 14.66% YTD while the traditional S&P 500 index grew 9.2%. Additionally, an impressive 73% of S&P 500 companies now trade above their 200-day moving average, in the highest reading in nearly two years.1 This improving market breadth suggests participation is becoming increasingly widespread across industries and sectors rather than concentrated on a select few companies.
Interestingly, market leadership has also rotated meaningfully this year. Value stocks have gained 20% year to date while Growth has lagged by approximately 1.4%, representing the second-largest relative drawdown for Growth versus Value since the Global Financial Crisis.2 While this rotation has supported a healthier market structure, history suggests these extreme divergences rarely persist indefinitely. Whether leadership remains broad or growth begins to regain momentum, investors appear positioned to benefit from multiple areas of the market rather than relying on a narrow group of stocks.
Earnings Continue to Exceed Expectations
Corporate America continues to deliver one of the strongest earnings seasons in several years. The companies that have reported results so far are generating exceptional growth, with earnings growth increasing 59.92% year over year while sales have grown 12.21%, demonstrating that strong revenue growth continues to translate into even stronger profitability.3 Earnings surprises have also remained impressive, with 86% of reporting companies exceeding earnings expectations, comfortably above both the five- and ten-year averages. Revenue performance has been equally encouraging, with 80% of companies surpassing sales estimates, reinforcing the resilience of corporate America despite ongoing macroeconomic uncertainty.4 The most encouraging development this quarter is how widespread the earnings strength has become. All eleven S&P 500 sectors are reporting year over year earnings growth, with seven sectors producing greater than double-digit gains. Communications lead all sectors with a staggering earnings growth of +167%, followed by Technology at +152%, and Financials at +27%.5
The continued buildout of AI infrastructure remains a common theme amongst the largest contributors to earnings growth. Within Technology, the semiconductor industry has been the standout performer, delivering an extraordinary +577% year over year earnings growth, as the broader hardware and semiconductor ecosystem has benefited from persistent demand for AI accelerators and high-bandwidth memory.6 Tight memory supply and continued bottlenecks have supported pricing and profitability throughout the AI supply chain. Communication Services was driven by Alphabet’s blowout quarter, with sector earnings growth of 294% fueled by rapid cloud expansion and increasing enterprise AI adoption.7 While Alphabet’s share price reacted to rising capital expenditures, Google Cloud’s +88% growth demonstrates that businesses are moving beyond AI experimentation and into large-scale deployment and are translating into meaningful monetization opportunities. Financials have also become indirect beneficiaries of the AI investment cycle, as heightened IPO issuance, increased capital raising, and robust capital markets and trading activity tied to AI-related companies have driven record broad-based strength across banks across IB and trading. Together, these results demonstrate that the AI buildout is creating meaningful earnings growth across multiple sectors of the economy.
Record Profitability Highlights Corporate Strength
Another defining characteristic of this earnings season has been the continued expansion in corporate profitability. The blended net profit margin for the S&P 500 currently stands at 15.7%. Eight sectors are generating profit margins above their respective five-year averages, led by Communication Services, Information Technology, and Energy. Looking ahead, analysts expect profit margins to remain near historically elevated levels throughout the remainder of 2026, suggesting companies continue to demonstrate strong pricing power, disciplined expense management, and operating leverage despite ongoing investment in artificial intelligence and infrastructure.
As we move through the remainder of earnings season, the broader investment backdrop remains constructive. Forward earnings estimates continue to move higher while valuation multiples have moderated slightly as earnings growth outpaced stock prices. At the same time, analysts’ bottom-up price target for the S&P 500 implies approximately 21% upside over the next twelve months, led by continued optimism within Communication Services and Information Technology.8
The combination of broadening market participation, expanding earnings growth across multiple sectors, record corporate profitability, and continued investment in transformational technologies paints an encouraging picture for investors. While periods of volatility are inevitable, the fundamental backdrop continues to support our long-term constructive outlook as we move into the rest of the second quarter’s earnings season.
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[1] Bloomberg, as of July 29, 2026
[2] Bloomberg, as of July 29, 2026
[3] Bloomberg, as of July 29, 2026
[4] Bloomberg, as of July 29, 2026
[5] Bloomberg, as of July 29, 2026
[6] Bloomberg, as of July 29, 2026
[7] Bloomberg, as of July 29, 2026
[8] Bloomberg, as of July 29, 2026
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
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