Corporate America is having a moment

As this earnings season winds down, corporate America has plenty to celebrate.

S&P companies delivered a standout Q2, with EPS up 53% from a year earlier and revenue rising nearly 16%, per LSEG. That marked the strongest earnings growth for the index since 2021.

The perfect profit storm

AI, of course, played a big role. The Magnificent Seven posted 118.5% earnings growth in Q2, helped by enormous investment gains at Amazon and Alphabet. Strip out those two companies and the group’s growth rate drops to 43.2%—still impressive, just less bonkers.

Then came the tariff refunds. Companies have received billions of dollars back after tariffs were overturned by the Supreme Court, giving some an instant lift to profits. Abercrombie, for example, received about $100 million in refunds during the quarter, accounting for $1.75 of its $4.17 in EPS. Target received nearly $1 billion, adding $1.65 to its $4.11 in EPS.

And, despite months of gloomy confidence surveys, consumers are helping, too. Dollar General posted its fifth straight quarter of higher traffic, Best Buy saw strong demand for electronics, and companies from Target to Garmin have raised their full-year forecasts.

Energy chipped in, too. Higher oil prices helped the sector post 42.5% year-over-year revenue growth in Q2—the strongest of any S&P 500 sector.

A tough act to follow

All of this sounds pretty great, but whether or not corporate America can keep up this pace is another question entirely.

Bulls argue that AI investment remains strong, consumers are still spending, and corporate outlooks are improving. In fact, nearly twice as many companies raised their profit forecasts for the current quarter as opposed to cutting them—a sharp reversal from a year ago, when downgrades outnumbered upgrades.

Bears, meanwhile, warn that growth this fast rarely lasts. The S&P 500’s trailing four-quarter earnings growth rate has reached roughly 35%, a level exceeded in only about 8% of quarters since 1928. Historically, those bursts of exceptional growth tend to be followed by much slower periods.

And some of Q2’s biggest boosters are inherently temporary: Tariff refunds will run out, massive investment gains won’t reliably repeat every quarter, and energy profits depend partly on oil prices staying elevated.

That doesn’t mean profits need to fall from here. Corporate America could keep making more money even as earnings growth cools in the quarters ahead. Investors might just want to remember an old rule of thumb: Expect a little less, and leave some room to be pleasantly surprised.—SY