Companies are trouncing expectations this earnings season, but investors are mostly turning a deaf ear. The S & P 500 is on track for earnings growth of 9% in the second quarter versus the same period a year ago, more than double the 4% that was at the start at the end of June, according to a Friday report from Goldman Sachs. Even so, the response has been middling, at best. Goldman Sachs found that the median stock whose earnings topped expectations has only outperformed the S & P 500 by 0.55 percentage point, below the historical median of 1.01 percentage points. Meanwhile, earnings disappointments have been punished more severely than in the past. The investment bank found that companies that missed earnings expectations underperformed by roughly twice the historical precedent. Shares of Amazon , for example, dropped more than 9% in two days after the online retailer reported second-quarter results that topped expectations but issued lackluster current-quarter operating income guidance. Other examples include On Semiconductor , which dropped more than 15% Monday even after posting solid results. Paltry reward “The reward for earnings beats has been paltry,” Goldman’s chief U.S. equity strategist David Kostin wrote. There are several potential reasons for the muted response to strong earnings. For one, much of the total index gain comes from the Magnificent Seven stocks , which as a group are responsible for year-over-year earnings growth of 26% in the second quarter. The rest of the S & P 500? Just 4%. For another, Kostin noted that analysts set an “unrealistically” low bar coming into the second quarter earnings season, fearful of the impact tariffs would have on businesses’ ability to boost profits and plan for the future. Instead, a review of earnings calls thus far suggests management confidence in its ability to navigate levies, Kostin said. Still, there are those on Wall Street who worry that repeated tariff extensions will continue to weigh on the market and the economic outlook. For her part, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said a review of second quarter earnings calls is making her cautious. “In the Wednesday press conference,” after last week’s Federal Reserve policy meeting, “the phrase that Chairman Powell used that really resonated with us, is that we have a ‘long way to go’ in understanding what the impacts of tariffs will be on inflation,” Calvasina wrote in a note. “What we’ve been reading during earnings has also led us to believe that we have a long way to go to understanding how the recent changes in trade policy will impact demand and 2026 outlooks,” she added.
