Year-to-date stock market returns have been driven by robust earnings growth. But when assessing the equity outlook, it’s important to ask what’s supporting the strong earnings trend.
As second quarter earnings season gets underway, we look at the historically important variable of sales to understand performance. Corporate earnings are a function of both sales and margins. As we’ve highlighted before, S&P 500 margins are at or near all-time highs because of cost cutting and efficiency gains. But even as margins improve, sales growth remains essential to sustaining earnings momentum.
After a softer period following the post-pandemic boom, sales expectations are improving. Consensus estimates for 12-month forward sales have moved up this year and are nearly 14% higher than a year ago, highlighting the resilience of the broader economy. While sector-specific tailwinds such as AI adoption are helping drive sales and earnings growth, the trend is not limited to technology. Sales for S&P 500 companies outside the technology sector are still expected to increase 8.7% from a year earlier.
In short, rising sales expectations are a positive signal for markets. They suggest analysts expect companies to generate more revenue in the coming year, which can support earnings growth, strengthen corporate fundamentals and renew investor confidence. Although sales growth is nearing the upper end of its historical range and may slow at some point, its broad-based, continued momentum remains a positive signal for our 2026 outlook.
