Strong earnings season

With almost 90% of S&P500 Companies reported, 1Q26 was one of the strongest U.S. earnings seasons in recent years for the S&P 500: (1) Revenue growth: 11.6% YoY, the highest since Q2 2022. (2) Earnings (net income/EPS) growth: 28.4% year-over-year. This marks the highest since Q4 2021 and the sixth consecutive quarter of double-digit growth. (3) Net profit margin: 14.8% up from the prior year (12.8%) and above the 5-year average. (4) Beat rates were exceptionally high: 84% of companies beat EPS estimates and 81% beat on revenue, both well above 5 and 10-year averages. Aggregate surprises were also strong (earnings 16-18% above estimates). All eleven sectors showed positive YoY revenue growth, led by Information Technology, Communication Services and Utilities. If you look at the chart below, earnings revisions have been massively revised upwards. And on top of that, Debt to EBITDA ratios remain low at 1.6X on average. which means results were not fabricated through massive debt increases. Debt is growing steadily, but not enough to be the main source of these results. Overall, the U.S. corporate sector overvaluation discussion, appears to be resting on incredibly resilient earnings.

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