For years, investors have been told that strong earnings are all that matter. This earnings season reminds us that in the stock market, strong results alone are often not enough—stocks react not to earnings themselves, but to how those earnings compare to expectations already embedded in stock prices.

Four Key Takeaways

• Earnings season was outstanding, but several stocks still fell. Investors didn’t reward “good” results. They were only rewarded with results that exceeded the very highest or those who jumped over a very low bar. And low expectations.
• Profit margins remain near record territory. Companies continue demonstrating pricing power and operating leverage despite higher interest rates and ongoing economic uncertainty caused by the Iran war.
• Technology, Energy, and Materials are driving earnings growth. The Health Care sector remains the major laggard as earnings estimates continue moving lower.
• Overall, SP500 earnings outlook is accelerating, not slowing. FactSet now expects more than 20% earnings growth for the S&P 500 in Q2, Q3, and Q4 of 2026.

OPENING

Good evening everyone.

This week I want to discuss a lesson that every investor eventually learns:

Sometimes, Good isn’t always good enough.

In fact, some of the biggest stock declines this earnings season occurred after companies reported results that most investors would consider excellent. Why?

Because in the short term, stocks don’t always move based on whether earnings are good or bad.  Many times, over shorter-term earnings period, stocks move based on whether earnings are better or worse than the margins buyer or seller of the stock’s expectations.

And right now, expectations, especially for artificial intelligence, semiconductors, and technology companies—the expectations bar has become extraordinarily high.

The latest FactSet Earnings Insight report from June 6 offers a useful big-picture snapshot of the current earnings environment. The outlook for S&P 500 earnings remains very strong over the next few quarters. Even so, several market favorites sold off after reporting first-quarter 2026 results. Today, let’s look at what happened and what it may mean for investors going forward.

POINT #1: S&P 500 EARNINGS SCORECARD – FUNDAMENTALS REMAIN STRONG

Let’s start with the good news.

The overall earnings season remains exceptionally healthy.

FactSet reports that most companies beat both earnings and revenue estimates in 1q26, and analysts have actually raised earnings estimates during the quarter.

That almost never happens.

Historically, analysts reduce estimates by roughly 2% during a quarter.

Not so far this quarter? The Q2 bottom-up EPS estimate has increased 2.7% since March 31. That’s a swing of nearly five percentage points relative to history.  Even better, companies themselves are optimistic. Of the 108 companies issuing guidance for the second quarter:

• 61 issued positive guidance
• 47 issued negative guidance

That means 56% of companies guided higher, compared to an average of only 41%.

FactSet now projects:

• Q2 earnings growth: +21.7%
• Q3 earnings growth: +25.1%
• Q4 earnings growth: +22.6%
• Full-year 2026 earnings growth: +22.8%

If achieved, Q22026 would mark:

• A second consecutive quarter above 20% earnings growth
• A seventh consecutive quarter of double-digit earnings growth

Those are remarkably strong numbers. Yet despite all this good news, investors still punished several companies. Why? Because expectations were even higher and many stocks had already rallied 30-100% off the late March lows. Remember the S&P 500 rallied over 20% in less than 45 trading days. That’s a true V-Bottom.

WHEN GOOD RESULTS WEREN’T GOOD ENOUGH

What are we talking about? Consider several recent examples. Here’s a quick table:

GRAPHIC: “GOOD RESULTS, BAD REACTION”

Company	Earnings Highlights	Initial Stock Reaction*
Broadcom (AVGO)	Revenue beat, EPS beat, AI revenue guidance raised, margins remained strong	-12%
Ciena (CIEN)	Revenue beat, EPS beat, full-year outlook increased	-15%
CrowdStrike (CRWD)	Revenue beat, EPS beat, guidance raised	-10%
Snowflake (SNOW)	Revenue beat, product revenue guidance raised, strong customer growth	+36%
NVIDIA (NVDA)	Revenue beat, EPS beat, data center growth remained exceptional despite export restrictions	Flat to -3% initially
KLA Corp (KLAC)	Revenue beat, EPS beat, semiconductor equipment demand remained strong	-5%
Celestica (CLS)	Revenue beat, EPS beat, AI infrastructure demand remained robust	-14%
Deere (DE)	EPS beat, margins exceeded expectations, guidance maintained	-5%

(Data from Bloomberg)

Most of these companies continue to benefit from strong underlying business trends.

Yet investors have become increasingly selective. After enormous stock gains over the past year, even strong earnings are being scrutinized for signs of slowing momentum, lower future growth rates, or any indication that expectations have gotten ahead of reality.

This is classic later-stage bull market behavior. The lesson?

Over the short -term, stocks often don’t get rewarded for being great.

They get rewarded for being greater than expected.

POINT #2: PROFIT MARGINS REMAIN IMPRESSIVE

The second major takeaway involves profit margins.

For years investors worried that inflation, higher wages, and higher interest rates would crush corporate profitability. That simply has not happened yet. Instead, many companies have adapted remarkably well. Profit margins remain near historically strong levels.

Companies continue using: Technology, Automation, Artificial Intelligence, Scale advantages to protect profitability.

This is one reason earnings growth has been accelerating faster than many economists expected. A company does not need explosive revenue growth if it can improve efficiency and expand margins. And that’s exactly what we’re seeing across large portions of corporate America. The margin story is one of the most underappreciated bullish developments in today’s market.

POINT #3: WINNERS AND LOSERS BY SECTOR

The leadership sector remains very clear.

Positive Contributors

Information Technology

While the energy sector has the fastest projected growth, by market cap, Technology continues to dominate earnings growth.

FactSet estimates Q2 earnings growth for the sector at over 58%. Single stock wise,

NVIDIA and Apple have been among the largest contributors to higher expected earnings.

Energy

Energy has experienced the largest upward revision. Expected sector earnings have increased nearly 50% since March. Chevron, Exxon Mobil, ConocoPhillips and other producers have benefited from stronger commodity trends.

Materials

Materials rank third in upward earnings revisions. Chemical and industrial materials companies have seen meaningful estimate increases as economic activity remains stronger than expected.

Negative Contributor

Health Care

Health Care is the lone weak spot. Expected earnings have fallen sharply since March.

FactSet now projects earnings contraction for the sector, driven largely by estimate reductions at companies such as Gilead Sciences. The contrast is striking. Technology, Energy and Materials are moving higher estimates. Health Care is moving lower.

That divergence is helping explain much of the market leadership we witnessed this year, and especially off the March lows.

POINT #4: THE OUTLOOK IS GETTING BETTER, NOT WORSE

Perhaps the most important message in the entire report is this:

Analysts are becoming more optimistic. Not less. Here’s the graphic for 2026 and 2027 S&P500 bottom-up estimates.  $336 in 2026 and over $390 in 2027.

Even FactSet’s quarterly, bottom-up earnings forecasts continue to move higher.

Current expectations call for:

• Q2 earnings growth: 21.7%
• Q3 earnings growth: 25.1%
• Q4 earnings growth: 22.6%
• Full-year 2026 growth: 22.8%

Revenue growth also remains strong:

• Q2 revenue growth: 12.0%
• Q3 revenue growth: 10.7%
• Q4 revenue growth: 10.2%

Those are not recession numbers. Those are expansion numbers.

The challenge for investors seems to be we’ve run quite fast off the March lows and valuation. The S&P 500 forward P/E ratio now stands at 21.1 times earnings, above both the 5-year and 10-year averages. That means the market is already pricing in some good news. It’s also why the gains YTD have been entirely earnings growth while the PE multiple has contracted.

And that’s why we’re seeing some stocks decline after strong earnings reports. Expectations have risen almost as fast as earnings.

CLOSING

So, what’s the bottom line? The latest FactSet report paints a very encouraging picture for the overall market.

Corporate earnings are growing and actually projected to accelerate for 2 more quarters. Profit margins remain strong. Guidance is improving. Analysts are raising estimates.

And earnings growth is expected to remain above 20% through the remainder of 2026.

That’s the good news. The challenge is that many investors already know it.

And in today’s market, simply being good isn’t enough. Companies must exceed expectations. They must raise guidance. They need to demonstrate acceleration.

When valuations are elevated and optimism is abundant, the market demands near perfection. That’s why the theme of this earnings season is simple:

When Good Isn’t Good Enough.

I’m Chris Perras.

Thank you for watching, and I’ll see you next week.

Do you need a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at 877-896-0040 or fill out this form for a free visit: https://click2retire.com/lets-connect