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US CORPORATE PROFITS BOOM ANSWERS WALL STREET'S BIGGEST QUESTION

The question dominating Wall Street in recent weeks has had a straightforward answer, according to analysts at Societe Generale - the S&P 500 is rallying because corporate profits are “booming.”

With roughly 80% of S&P 500 .SPX companies having reported, 85% have beaten earnings estimates — the best hit rate in five years — while EPS misses have fallen to record lows, analysts Manish Kabra and Charles de Boissezon said in a report. Revenue beats have improved for three consecutive quarters and are now near cycle highs of 78%.

Profit margins have hit a record 14%, with expansion across 64% of sectors — well beyond technology. Full-year 2026 EPS growth has been revised sharply higher to 21% from 15% three months ago, with 73% of sectors now expected to post double-digit earnings growth.

Technology led sector beats at 98%, followed by Utilities at 90% and Energy at 89%. AI-driven cloud demand powered strong results from the hyperscalers, with Alphabet, Microsoft Azure and Amazon Web Services all posting robust growth on accelerating enterprise adoption.

That boom carries a steep price tag. Hyperscaler capital expenditure for 2026 has been lifted to $755 billion from $669 billion before the reporting season. That is roughly 80% growth versus 2025, making AI spending the single most important quarterly risk catalyst, Societe Generale said.

Financials are also delivering, with 85% of banks beating estimates. Despite scrutiny of private credit markets, bank exposure remains limited at 1-2% of balance sheets, with credit growth re-accelerating broadly.

Looking ahead, the analysts said any oil shock should prove short-lived given U.S. political constraints. Profits remain "the anchor (the glue)" for markets, supported by fiscal policy, AI-led capital expenditure, the power cycle and industrial policy. Federal Reserve rate cuts, they added, “would turn a bullish market into a raging bull.”

(Karen Brettell)

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