Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials HomeInvestorEarnings are so good investors are starting to worryThe question now: Is this is as good as it gets?Author of the article:Last updated 1 hour ago You can save this article by registering for free here. Or sign-in if you have an account.Overall, 85.2 per cent of companies exceeded Wall Street’s EPS expectations through Monday’s close, which is the highest percentage since 2021. Photo by TIMOTHY A. CLARY/AFP via Getty ImagesThe latest reason to worry about the stock market is quite the doozy: Earnings growth has been too strong.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorAs the latest reporting season nears completion, all signs are indicating the second quarter was one of the best three-month periods in recent memory with profit growth running at more than 30 per cent.The only problem? That torrid pace is unlikely to last. The consensus currently expects growth to fall below 20 per cent in the first quarter of 2027 before moderating into the mid-teens for the full year, according to strategists at Bank of America Corp. While in isolation those rates are healthy from a historical standpoint, the market often has been less supportive when earnings growth decelerates from elevated levels.It’s a recipe that potentially could place next year’s stock market in the weakest phase for equities: When earnings-per-share growth is above trend but decelerating, the S&P 500’s median 12-month return is 6.7 per cent with a hit rate of 72.3 per cent, according to BofA. That compares with a median 14 per cent return and a hit rate of 83.3 per cent when EPS growth is above trend and accelerating.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againStill, the historical data set is very limited when it comes to the type of profit bonanza unfolding this year. BofA strategists led by Savita Subramanian expect growth to remain above 20 per cent in the third and fourth quarters, which would mark four consecutive quarters above that level.Streaks like that have been rare, occurring only 10 times since 1936. The most recent examples have taken place after EPS recessions, the strategists said. Examples include COVID and the global financial crisis.And the growth rate is not the only standout statistic for the second quarter reporting season. S&P 500 Index profits are also heading toward one of their largest beats on record versus analysts’ estimates, according to Citadel Securities.Scott Rubner, head of equity and equity derivatives strategy at the firm, noted that companies are also driving the steepest earnings-estimate revision path in at least 26 years.“Importantly, this is not just an AI story,” Rubner wrote in a note published on Tuesday. “The macro debate remains complicated, but the message from corporate America is much simpler: earnings are better than expected, and by a wide margin.”Overall, 85.2 per cent of companies exceeded Wall Street’s EPS expectations through Monday’s close, which is the highest percentage since 2021, data compiled by Bloomberg Intelligence show. Furthermore, only 10.8 per cent of companies have failed to meet expectations, which is the lowest number in three decades.The S&P 500 gained 0.3 per cent on Wednesday as investors cheered better than expected quarterly reports from companies including CoreWeave Inc. and Super Micro Computer Inc.The question now: Is this is as good as it gets?Ben Inker, co-head of asset allocation at GMO, said that earnings have been “extraordinary” in the second quarter. However, there was a difference between the artificial-intelligence space and the rest of the market. Much of the latter can have its good earnings attributed to a “cyclical upturn.”“If the upturn continues, it is very likely to push up inflation and interest rates, and if it falters, companies are likely to disappoint relative to upgraded forecasts,” said Inker.While Bespoke Investment Group’s analysis shows companies are boosting their growth expectations at one of the highest clips in the last 25 years, the firm is exercising caution and warning of extremes.The elevation in analysts’ expectations and companies’ own guidance boosts the likelihood that “pockets of excess will emerge,” according to Noah Weisberger, chief United States equity strategist at BCA Research, though he added that low-teens earnings growth expectations for 2027 looks achievable.Yet with interest rates elevated and a large amount of equity supply set to hit the market when more AI companies go public, it’s risky time for earnings growth to peak.“The bond market remains our chief source of concern for equities, given stretched multiples and an IPO wave that still needs to be absorbed at current valuations,” said Weisberger. “At some point, investors will rightly choose not to pay peak multiples for peak earnings.”Potentially, investors are realizing the bar now may be too high for companies in the coming quarters. BofA strategist Jill Carey Hall noted that market reactions to earnings beats and growth have been somewhat more muted in comparison to prior quarters, suggesting that “a lot of the good news has been priced in.”Western Digital Corp., Datadog Inc., Sandisk Corp. and DaVita Inc. all beat on the top and bottom lines but sold off. Indeed, Bloomberg Intelligence data has shown companies that have beaten on revenue, earnings, or both have on average seen flat one-day excess returns. And misses have triggered steeper selloffs.“Investors already were kind of positioning for this good news and strong earnings,” said Carey Hall. “Then once the stocks beat that, that reward isn’t really transpiring to be as much as you normally would see.”—With assistance from Geoffrey Morgan. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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