This has been one of the best earnings seasons on record, per Goldman Sachs

Goldman Sachs reports the Q2 earnings season as one of the strongest in 25 years, with 60% of S&P 500 companies beating EPS forecasts by over one standard deviation. This outperformance, driven by a low initial consensus and resilient profit margins despite tariff concerns, resulted in aggregate S&P 500 EPS rising 11% versus a 4% expectation. The strong results led 58% of companies to raise 2025 guidance and analysts to increase future estimates, although Goldman anticipates a deceleration in S&P 500 EPS growth to 7% in H2.

Analysis

The second-quarter 2025 earnings season has been exceptionally strong, with 60% of reporting S&P 500 companies beating EPS forecasts by more than one standard deviation—a rate Goldman Sachs identifies as one of the highest in 25 years. This outperformance resulted in an aggregate S&P 500 EPS growth of 11% year-over-year, significantly surpassing the 4% consensus expectation. However, this strength was largely driven by a low expectations bar set by analysts in the spring due to fears over tariffs, which ultimately proved less impactful on corporate profit margins than feared. The robust results have led to a sharp increase in optimism, with 58% of companies raising their 2025 guidance and analysts lifting estimates for the second half of 2025 and for 2026. Despite this, Goldman's analysis strikes a cautious tone, warning that the margin expansion now embedded in consensus estimates appears unrealistic. The firm anticipates that the recent trend of positive earnings revisions will weaken and forecasts a deceleration in S&P 500 EPS growth from 11% in Q2 to 7% in the second half of the year.

Key Decisions for Investors

• Investors should recognize that while Q2 results were strong, the outperformance was amplified by a low bar, and future earnings beats may be more challenging as expectations have now been reset significantly higher.
• It is prudent to critically evaluate companies' forward guidance, paying close attention to the sustainability of profit margins, as Goldman Sachs flags the margin expansion embedded in consensus estimates as potentially unrealistic.
• Consider positioning for a market environment of slowing growth, as S&P 500 EPS growth is forecast to decelerate from 11% to 7% in the second half, which could temper broad market upside.