All I can say about this earnings season is WOW!
With 61% of S&P 500 companies reporting earnings for the second quarter of 2026, according to FactSet, a whopping 86% of them have reported a positive EPS surprise and 77% have posted positive revenue surprises!
And the earnings growth rate is 47.4%! If that number holds throughout the entire reporting season, that will result in the highest earnings growth rate by the index since the 91.6% recorded in the second quarter of 2021, when we began to see some weakening in the COVID epidemic.
Despite the wars continuing to rage in Ukraine and Iran, the fear of rising interest rates, still-high inflation, and the never-ending issue of tariffs, the earnings growth rate continues to rise—more than doubling since the June 30 estimate of 23.2%, as you can see in FactSet’s latest Earnings Insight report.
And that’s really great news for investors.
Why Do Investors Care So Much About Earnings?
Investors closely watch earnings reports because, historically, earnings are predictors of the overall health of a company and the market. They tell investors if the company is fundamentally strong, are used to forecast the direction of a company’s stock price, and give consumers and investors an idea of the direction both markets and the economy may be heading.
If earnings are on the upswing, in general, so are the markets and the economy. After all, if the majority of the 500 companies in the S&P 500 Index are seeing their revenues and earnings escalate, that means consumers are buying what they are selling. And as long as consumers continue to buy, the companies will profit. On the other hand, if people are not spending, company earnings will not grow, and that’s bad news for the economy, and the market.
And that rising tide is pushing up all stock styles, with small caps and value stocks finally getting some positive action.
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U.S. Equities - S&P Indexes
| Name | YTD Return | 1-Year Return |
| Small Cap Growth | 24.56% | 33.79% |
| Small Cap Value | 21.15% | 38.82% |
| Mid Cap Growth | 17.06% | 23.66% |
| Mid Cap Value | 13.29% | 21.58% |
| Large Cap Growth | 12.15% | 23.67% |
| Large Cap Value | 9.88% | 19.76% |
Source: SeekingAlpha.com
Additionally, this quarter’s earnings growth is widely diversified, with multiple sectors reporting double-digit earnings growth for the quarter, including Energy (135.3%), Communication Services (109.8%), Consumer Discretionary (90.7%), and Information Technology (69.4%).
Most sectors—with the exception of Consumer Discretionary and Communication Services—are
responding with increasing stock prices.
U.S. Sector
| Name | YTD Return | 1-Year Return |
| Energy | 31.49% | 37.38% |
| Technology | 23.66% | 38.51% |
| Industrial | 18.08% | 22.32% |
| Basic Materials | 12.48% | 17.64% |
| Real Estate | 11.97% | 9.42% |
| Consumer Staples | 9.24% | 5.86% |
| Healthcare | 4.81% | 23.72% |
| Financial Services | 4.77% | 11.63% |
| Utilities | 3.91% | 3.40% |
| Consumer Discretionary | -1.00% | 9.41% |
| Communication Services | -5.42% | 4.92% |
Source: SeekingAlpha.com
And it’s not just businesses in the U.S. that are seeing their profits grow. Companies in the S&P 500 Index that make more than 50% of their sales inside the U.S. have a blended earnings growth rate of 35.5%, while those that earn more than 50% of sales outside the U.S. are seeing a blended earnings growth rate of 74.7%.
That’s very positive. And an additional reason that investors can rejoice is that the market—despite a very nice bull run in recent months—still appears to be undervalued, trading at a P/E of 19.6, below the 5-year average of 19.9.
3 Stocks Seeing Exceptional Earnings Growth
While Amazon (AMZN) was the largest contributor to the second quarter earnings surprises—posting EPS of $5.75, compared to the $1.82 predicted—there are scores of other companies that reported admirable earnings increases.
I took a look at some of the largest earnings winners, and as I mentioned earlier, the choices were widely diversified.
After winnowing down the list, I think the following three stocks look interesting, and hail from three very different industries.
Allegiant Travel Com (ALGT). This company’s second-quarter earnings came in at $0.15, compared to the $0.03 analysts were expecting. I’m not a great fan of airline stocks, but if you are looking for a cyclical pick, this one may fit the bill.
Imax Corp (IMAX). Folks are returning to the theater, especially Gen-Zers who make up the majority of patrons these days. And IMAX is benefiting from its blockbuster release of The Odyssey, which has generated almost a billion dollars in its first three weeks. The company reported earnings of $0.43 versus the $0.30 Wall Street was expecting.
AMN Healthcare Services Inc (AMN) beat earnings estimates in its first quarter by 50 cents. The second quarter saw the company meet estimates—at $0.44 per share—which was a nice improvement over the $0.39 it made in the same quarter last year. With healthcare technology rapidly growing—supported by AI—I expect this stock to benefit over the long term.
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