A Stock Market Anomaly: Why S&P 500 Companies' Earnings Are Underwhelming
An anomaly emerged in the stock market in the second quarter of 2026: the overwhelming majority of the world’s largest companies (listed on the S&P 500) reported revenue and earnings per share that were nearly a third higher than expected. This surprised analysts, but the market reacted very weakly to this positive news—the stock prices of these companies rose by an average of just 0.4% in the first few days before and after the earnings reports were released—nearly three times less than usual. To help make sense of what happened and what new trends are emerging in the stock market, Oninvest spoke with Vadim Merkulov, director of the analytical department at Freedom Finance Global.
Anomaly, Alphabet, Amazon
On the U.S. stock market, the second-quarter “earnings season” for public companies is drawing to a close. More than 90% of S&P 500 companies have already reported their earnings. The index’s year-over-year earnings growth stands at 50.4%—the highest since the post-COVID year of 2021, according to Vadim Merkulov.
According to the latest FactSet report, 86% of the companies that have reported earnings exceeded analysts’ earnings per share (EPS) estimates. This is significantly higher than the five-year and ten-year averages of 78% and 76%, respectively.
The actual earnings of the companies that have reported turned out to be, on average, 29.2% higher than forecasts. This is significantly higher than the five-year average of 7% and the ten-year average (7.4%). This aggregate “surprise” has already set a record for the entire history of FactSet’s data collection since 2008. According to the company itself, the previous record of 23.2% was set in the second quarter of 2020.
Vadim Merkulov points out that the surprise came mainly from just two companies: Alphabet (Google) and Amazon. Together, they accounted for approximately 71% of the S&P 500’s profit growth, he notes.
Alphabet reported earnings of $9.11 per share, compared to the expected $2.88. This EPS includes $98 billion in unrealized gains from the revaluation of its stock portfolio. The exact breakdown of this amount has not been publicly disclosed, but among Alphabet’s largest investments are stakes in the AI company Anthropic, the developer of Claude, and SpaceX.
The situation is similar at Amazon: the company reported earnings per share of $5.75, compared with the expected $1.82, and about $53.4 billion of that profit came from the revaluation of its stake in Anthropic.
However, even when “adjusted” for these two companies, the picture remains very strong, according to Merkulov, who explains: Without them, S&P 500 earnings growth would be about 32%, and the aggregate beat would be close to 11%.
The positive sentiment among large companies is spilling over to smaller players, Merkulov notes: The Russell 2000, which represents the segment of U.S. small-cap companies, has gained 22.3% since the beginning of the year, while the largest companies have risen by 9.9%. The companies themselves are also showing an unusually high level of confidence in the outlook: only 33% of them issued a negative forecast for the third quarter, compared with an average of 58% over the past five years.
Despite exceptionally strong second-quarter corporate earnings, the stocks of companies that have reported earnings have risen by only 0.4% on average over the two days before and after the release of their financial results. Historically, the average has been 1%, according to FactSet.
At the same time, companies that reported earnings below analysts’ expectations in the second quarter of 2026 are, conversely, performing better in the market. Shares of these companies fell by an average of 2.3%. This decline is smaller than the five-year average, notes FactSet senior analyst John Batters: over the same period, shares of companies with negative earnings surprises fell by an average of 3%.
What's Behind the Market Anomaly
The market is reacting to the current strong results much more weakly than usual, as it seems to be gradually getting used to the good news, argues Vadim Merkulov. According to him, the weak stock gains may mean that a significant portion of the positive results has already been factored into prices in advance, so another positive earnings surprise is perceived by the market more as an expected event.
This creates a paradoxical situation for conservative investors: the U.S. market is rising, but its valuation relative to projected earnings is falling
The expert clarifies: Since the beginning of the year, the S&P 500 has gained about 13%, while the forward P/E ratio—the ratio of companies’ market value to expected earnings—has fallen from 22.2 to about 20. “This means that corporate earnings growth forecasts are rising faster than stock prices themselves,” the expert notes.
The market is also being supported by macroeconomic factors: Inflation in the U.S. remains relatively stable, and the unexpected decline in employment in July led the market to roughly halve the expected probability of a Fed rate hike at its September meeting. The Fed’s target range for the federal funds rate is currently 3.5–3.75%. Following its July 28–29 meeting, the Fed left the interest rate at this level for the fifth time.
The Risks of Unusual Success
Vadim Merkulov notes: The observed anomaly is not a trend—the market is currently in a bullish trend, so the anomaly will only persist for a short time.
At the same time, Merkulov believes that current trends are creating conditions for both further market growth and an extension of the current rally. According to FactSet, analysts are forecasting a 27.4% increase in earnings and an 11.3% increase in revenue for the third quarter of 2026. For the fourth quarter, they expect earnings to grow by 25.2% and revenue by 10.9%. For 2026 as a whole, earnings for companies in the S&P 500 index could rise by 30%.
Moreover, even a potential 25-basis-point rate hike by the Fed is unlikely on its own to halt the market's momentum, adds Vadim Merkulov.
The main risk right now is a possible downward revision of corporate earnings forecasts, the expert notes. It is precisely the expectation of further earnings growth that remains the foundation of the current rally. It is difficult to predict when the market will reach the point at which these expectations prove to be overly optimistic, but, according to Merkulov, that moment has not yet arrived. Therefore, even a conservative investor, in his view, should not exit the market prematurely and miss out on the opportunity for further growth.
For long-term investors, holding the S&P 500 remains a sound strategy, the expert concludes.
However, Jay Hatfield, founder, CEO, and portfolio manager at Infrastructure Capital Advisors, believes that the start of a sideways trading phase is already evident following the end of earnings season, as Oninvest previously reported.
This article was AI-translated and verified by a human editor
