The S&P 500’s second-quarter earnings season appeared to deliver a historic 50.4% growth rate, fueling a market rally near all-time highs and prompting major banks to raise their index targets source. This has sparked a critical debate among investors: is this surge a sign of broad economic strength, or is it an accounting illusion driven by massive paper gains on private AI stakes held by a few tech giants source?
While $152 billion in non-operating gains from Alphabet and Amazon significantly inflated the headline number, a closer look reveals that core operational earnings growth remains exceptionally strong. After adjusting for these paper gains, the index still posted a robust 28.8% earnings expansion, supported by solid, double-digit revenue growth across a wide swath of companies.
S&P 500 Earnings and the $152 Billion Paper Gain
The primary driver of the inflated headline figure stems from GAAP accounting rules that require companies to revalue their private equity holdings each quarter. In Q2 2026, this resulted in enormous unrealized, non-operating gains for Alphabet and Amazon from their stakes in high-flying private firms like Anthropic and SpaceX source.
According to data from FactSet, these two companies alone booked a combined $152.4 billion in pre-tax paper gains, with Amazon contributing $53.4 billion and Alphabet adding $99.0 billion source. The sheer scale of these mark-to-market adjustments has led some market commentators to argue that, once removed, the S&P 500’s earnings growth looks far less impressive source.
Beyond Paper: Core S&P 500 Earnings Strength
Isolating these non-operating items provides a clearer picture of the index’s fundamental health. Removing the $152.4 billion windfall reduces the S&P 500’s blended earnings growth rate from a reported 47.4% in some datasets to a still-powerful 28.8% source.
This adjusted growth figure is not an anomaly. It is supported by strong top-line performance, a key indicator of genuine business expansion. S&P 500 revenue grew by a clean 13.2% in the second quarter, with a high 77.2% of companies reporting sales figures that beat analyst estimates source. This broad-based sales strength suggests that the underlying profitability of corporate America is solid, even without the help of venture capital markups.
How Wall Street Views S&P 500 Earnings
Major investment banks appear to be looking through the accounting noise and focusing on the core operational strength. Citing the strong earnings season and increasing evidence that AI capital spending is converting into revenue, JPMorgan recently raised its year-end 2026 target for the S&P 500 to 8,000 from 7,800 sourcesource.
Significantly, the bank’s analysis explicitly accounts for the paper gains. It issued a 2026 EPS forecast of $365, alongside a “normalized” forecast of $347 that excludes the private equity stake revaluations source. The 8,000 index target is based on a 20x forward multiple, indicating confidence in the market’s valuation even on this more conservative, operationally-focused earnings base source.
Key Uncertainties for S&P 500 Earnings
While the underlying picture is strong, two key uncertainties remain. First, the mark-to-market nature of the private equity gains introduces significant volatility. These paper profits can vanish as quickly as they appear in future quarters if private market valuations cool, which could create headline earnings misses even if core operations remain healthy. Second, the market’s earnings growth continues to show a high degree of concentration in a handful of mega-cap technology companies, a risk that persists despite the broader revenue strength.
Next Watchpoint for S&P 500 Earnings
The next major test for this earnings narrative will be the Q3 2026 pre-announcement season, which typically begins in the final two weeks of September. Investors should watch whether corporate guidance confirms that the broad-based revenue momentum is continuing into the second half of the year. This will provide the clearest signal on whether the market’s current valuation is justified by sustainable, operational growth.
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Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. This article was researched and drafted with AI assistance. Market conditions are subject to change. Readers should consult with a licensed professional before making any investment decisions.
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