Earnings beat in Q2, but margin outlook raises doubts: Goldman Sachs

[Man looking at currency trading app on his smart phone from his home office]
Alistair Berg

The second-quarter earnings season delivered a stronger-than-expected showing for U.S. corporations, though Goldman Sachs cautions that consensus margin forecasts for 2026 may prove overly optimistic.

S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]) earnings per share climbed 11% year over year, nearly triple the 4% growth analysts had forecast, said David Kostin, Goldman’s chief U.S. equity strategist, in an August 15 note to clients.

The upside largely reflected analysts’ aggressive estimate cuts earlier this year. Roughly 60% of reporting companies beat forecasts by more than one standard deviation, underscoring the low bar heading into the season.

Guidance also turned decisively more positive. Fifty-eight percent of companies raised their 2025 outlook, twice the share that did so in the first quarter. Analysts responded by lifting earnings forecasts across most sectors for late 2025 and 2026, though they still expect S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]) profit growth to slow from 11% in the second quarter to 7% in the second half of this year.

One key concern is profit margins. While tariff impacts have so far been more muted than feared, Kostin said the “dramatic expansion” embedded in 2026 margin forecasts looks unrealistic, even if companies continue offsetting higher costs. He expects analyst revisions to weaken in coming quarters, but no more than the long-term trend.

A weaker dollar provided an added boost, lifting nominal sales growth for large-cap companies in the quarter. But on a constant-currency basis, real sales growth decelerated for the S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]) and contracted for mid- and small-cap firms. Analysts now project stable sales trends across market caps in the second half of 2025.

The standout results again came from the mega-cap technology cohort. The so-called Magnificent Seven grew earnings by 26%, beating consensus by 12 percentage points.

While Nvidia (NVDA [https://seekingalpha.com/symbol/NVDA]) has yet to report, Wall Street has already raised 2026 capex estimates for the group by 29% to $461 billion. Year to date, their 2026 EPS estimates have risen by 1%, compared with a 4% decline for the rest of the index.

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