The Ledger Letter Finance Studio Advisors · Tuesday, July 7, 2026 |
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Q2 Estimates Went Up During the Quarter. That Hasn’t Happened in a Decade.Earnings season starts Wednesday when PepsiCo reports. Banks follow July 13. The S&P 500 is expected to post 23.3 percent year-over-year earnings growth, the seventh consecutive quarter of double digits. But the number underneath the number is what matters. For the first time in over a decade, analysts raised per-share estimates during the quarter — up 3.4 percent from March 31 to June 30, against a five-year average decline of 2.0 percent. Strip out Energy and Information Technology, and the revision trend turns negative. Two sectors earned the upgrade. Nine did not. |
The Breakdown Today’s disagreement: the headline says 23 percent growth. The breadth says two sectors are carrying the index. The multiple says the market priced the headline. The revision data says it should have priced the breadth. |
| 01 | The Revision Aggregate S&P 500 Q2 EPS estimates rose 3.4 percent during the quarter, per FactSet. In a typical quarter, estimates fall 2.0 percent over five years and 2.7 percent over ten. Energy recorded the largest upward revision at 61.5 percent, driven by the Iran conflict and elevated oil. Technology posted the second-largest at 8.7 percent on AI capex guidance. Without those two, the aggregate revision is negative. |
| | 02 | The Breadth Of the 111 S&P 500 companies that issued Q2 guidance, 57 percent gave positive EPS outlooks, well above the 41 percent five-year average. But Technology alone accounts for 44 of the 63 positive preannouncements. Transportation, Autos, Medical, and Consumer Discretionary are seeing estimate cuts accelerate since April. |
| | 03 | The Price The S&P 500 trades at 20.1 times forward twelve-month earnings — the 88th percentile of the last 40 years. Goldman Sachs raised its year-end target to 8,000. At this multiple, the market is pricing a broad beat-and-raise cycle. The earnings breadth says it is a narrow one. |
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| By the Numbers | Q2 EPS Growth (YoY, est.) | +23.3% | | Estimate Revision During Quarter | +3.4% | | Typical Quarterly Revision (5Y avg) | -2.0% | | Energy Sector Q2 Revision | +61.5% | | Tech Sector Q2 Revision | +8.7% | | Positive Guidance Rate | 57% (vs 41% avg) | | Forward P/E | 20.1x (88th pctl) | | Q2 Revenue Growth (YoY, est.) | +12.2% |
Sources: FactSet Earnings Insight (Jul 2, 2026), Goldman Sachs, Zacks. Estimates as of June 30, 2026. |
The Narrowest Earnings Breadth Since 2020Two Sectors, One Index Energy’s Q2 earnings are expected to grow 113 percent year over year, driven almost entirely by the Iran conflict and sustained oil prices above $80. Technology is expected to grow 43.6 percent, driven by AI infrastructure spending that now reaches across hyperscalers, semiconductor suppliers, and power-equipment makers. Together, these two sectors account for nearly all of the upward estimate revision during the quarter. Our view: remove Technology from the index, and Q2 earnings growth falls from 23 percent to roughly 11 percent. Remove Energy as well, and the picture softens further. The headline growth rate is real. The concentration risk underneath it is also real. Where the Cuts Landed In this tape, the sectors absorbing downward revisions are the ones closest to the consumer. Transportation estimates reflect fuel cost and demand softness. Auto estimates reflect affordability pressure and inventory builds. Medical estimates reflect reimbursement headwinds. Consumer Discretionary reflects the same 57,000-job labor market that spooked the bond market Thursday. The sectors that serve the American household are weakening. The sectors that serve the AI buildout are strengthening. That divergence has a name: K-shaped earnings. The Multiple’s Margin of Error At 20.1 times forward earnings, the S&P 500 sits in the 88th percentile of the past 40 years. That multiple is defensible if the beat-and-raise cycle broadens. It is fragile if the breadth narrows further. The historical pattern is clear: when earnings growth is concentrated in two sectors and the multiple is in the top decile, the index returns over the subsequent twelve months depend almost entirely on whether the narrow leaders sustain their trajectory or whether the lagging sectors drag the aggregate. What This Week Tests Worth watching: PepsiCo reports Wednesday. Delta Air Lines reports Thursday. Neither is Energy or Technology. Both are consumer-facing. If their guidance holds, the narrowing thesis weakens. If they guide down, the breadth problem becomes the earnings-season narrative before the banks even report July 13. FOMC minutes also arrive Wednesday. The market enters earnings season pricing 23 percent growth at a top-decile multiple. The first reporters will tell you whether the market priced the right number. |
For the first time in a decade, analysts raised estimates during the quarter instead of cutting them. They did it for two sectors. They cut nine. The headline said 23 percent growth. The breadth said concentration. At 20 times forward earnings, the market priced the headline. |
| The Ledger Letter When markets disagree, the signal is in the disagreement. | This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. |
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