U.S. firms posted stronger-than-expected results in Q2, though growth remained concentrated in a handful of sectors, Barclays reported.
The bank noted earnings climbed 10.6% year-on-year, with sales up 6.1%. A larger-than-usual share of companies exceeded analyst expectations, but misses were penalized heavily, with Barclays observing that “the reaction to misses was among the most extreme historically.”
Technology and Financials continued to drive profit expansion. Big Tech alone recorded nearly 28% earnings growth, while the broader tech sector increased almost 20%, both well above historical averages. Communications Services also performed strongly, posting 25% growth, whereas Materials and Utilities saw modest declines.
“TMT (especially Big Tech) and Financials remain the primary source of SPX EPS growth, margin upside and operating leverage,” strategists led by Venu Krishna said.
Only Communications Services and Financials showed positive operating leverage and margin improvement, while Energy, Utilities, and Materials lagged.
Forward-looking estimates rose as well. Barclays highlighted that the Street’s 2025 S&P 500 earnings forecast increased to $268 from $264 last quarter, largely supported by Big Tech, Industrials, and Financials. Conversely, Consumer Discretionary (excluding Amazon), Utilities, and Healthcare weighed on revisions.
Strategists noted that second-half revisions imply “materially negative tariff flow-through for some industries, DC/AI upside for others.” Managed Care experienced the steepest downward adjustments, while Electronics and Electrical Equipment gained from increased data-center spending.
Valuation multiples remain elevated but uneven. The S&P 500 trades near 22–22.5 times forward earnings, which Barclays does not see as a drag on performance. Industrials and non-mega-cap Tech appear stretched at roughly 25x and 27x, respectively, while Big Tech, at 29x, remains below late-2024 levels and its long-term premium.
Corporate commentary suggests that tariff concerns, though still present, have eased compared with the previous quarter. Fewer executives cited price hikes or high inventory levels, indicating some reduction in trade risks. Krishna said this “supports the narrative that peak tariff uncertainty has likely passed and mitigation efforts have yielded some results, but also that trade/macro uncertainty are still top of mind for company management.”
Meanwhile, artificial intelligence gained broader mention, with over half of executives referencing AI in general terms, often tied to efficiency or impact. However, specific capabilities like deep learning or prompt engineering were rarely highlighted.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.