That is above the 23.2% that analysts had expected before the season began.
The strength is not just a U.S. story. European companies posted earnings growth of 11.7%, the highest in three years, and slightly above pre-season expectations.
HSBC lead strategist Max Kettner wrote in a note: "Investors have once again been too bearish on earnings." He pointed out that projections for the S&P 500's future earnings per share keep getting upgraded, and the ongoing results season provides "another quarter of broad-based strength."
The index sits less than 3% beneath its June all-time high, having moved within a narrow band over the last two months. Companies are making more money, but their share prices have not kept up.
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"There is good reason for the strength in risk assets," the HSBC team wrote, pointing to strong Q2 earnings reports, improving U.S. GDP projections, reduced equity valuations, and other beneficial factors. This decline has been enough to remove a sell signal that had been triggered by market sentiment and positioning, leaving them with a "maximum overweight" stance on stocks. Kettner has maintained a bullish outlook for the majority of the last 42 months, a period in which the S&P 500 gained about 80%.
The broad-based strength in earnings has been driven by technology and communication services sectors, which continue to report robust demand. Meanwhile, energy companies have benefited from rising oil prices, though the market's resilience suggests investors are looking past near-term geopolitical risks. Analysts expect earnings growth to moderate in the second half of the year, but the current momentum provides a solid foundation for the market.
According to the strategists, rising bond yields do not worry them much because stock investors have mostly adapted to elevated yields, and credit spreads remain stable.
"Long-end US real rates have already risen to multi-decade highs," they wrote. "This is why equities haven't really reacted to the spike in oil prices, in our view." They further noted that a drop in yields might in fact benefit equities, especially if their forecast that U.S. exceptionalism will recede materializes.
This earnings season unfolds against a mixed macroeconomic backdrop. Inflation remains above central bank targets, and geopolitical risks such as Middle East tensions have pushed oil prices higher. Yet corporate earnings have consistently surprised to the upside, and U.S. GDP growth forecasts have been revised upward.
The combination of strong profit growth, lower valuations, and resilient credit markets has allowed stocks to hold near record levels despite headwinds that might otherwise trigger a pullback. As the second half of 2024 begins, investors are watching whether earnings momentum can persist or whether slowing growth will eventually weigh on margins.
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