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Investing.com -- U.S. companies delivered stronger-than-expected results in the second quarter, but growth remained heavily concentrated in a few sectors, according to Barclays.
The bank said earnings rose 10.6% year-on-year, while sales increased 6.1%. A higher-than-average share of companies beat expectations, though markets punished misses more than they rewarded beats, with Barclays noting the reaction to misses was among the most extreme historically.
Technology and Financials were again the main drivers of profit expansion, the bank highlights. Big Tech alone posted nearly 28% earnings growth, with the rest of the tech sector rising almost 20%, both well above historical averages.
Communications Services also stood out with 25% growth, while Materials and Utilities registered small declines.
“TMT (especially Big Tech) and Financials remain the primary source of SPX EPS growth, margin upside and operating leverage,” strategists led by Venu Krishna noted.
Communications Services and Financials were the only sectors showing positive operating leverage and margin improvement, while Energy, Utilities, and Materials saw declines.
Forward estimates have also increased. The Street’s 2025 earnings forecast for the S&P 500 moved up to $268 from $264 last quarter, boosted by Big Tech, Industrials, and Financials.
On the other hand, the Consumer Discretionary sector, excluding Amazon, Utilities, and Healthcare, dragged revisions lower.
Strategists said revisions for the second half suggest “materially negative tariff flow-through for some industries, DC/AI upside for others.”
Managed Care saw the sharpest downward changes, while Electronics and Electrical Equipment benefited from data-center spending.
On the valuation front, multiples remain elevated but uneven. The S&P 500 trades near 22–22.5 times forward earnings, a range Barclays does not view as a performance headwind.
Industrials and non-mega-cap Tech look stretched at about 25x and 27x, respectively, while Big Tech, at 29x, is still below its late-2024 levels and long-term premium.
Meanwhile, corporate commentary suggests tariff concerns, though still high, have eased compared with the previous quarter. Fewer executives discussed price hikes or high inventories, signaling some mitigation of trade risks.
Krishna said this “supports the narrative that peak tariff uncertainty has likely passed and mitigation efforts have yielded some results, but also that trade/macro uncertainty are still top of mind for company management.”
At the same time, references to artificial intelligence broadened, with more than half of executives mentioning AI in general terms, often linked to efficiency and impact. Specific skills such as deep learning or prompt engineering, however, remain rarely discussed.