U.S. stocks Q2 report cards can't hide concerns? Goldman Sachs warns that the 2026 profit margin forecast may be overly optimistic
Despite U.S. companies exceeding earnings expectations in the second quarter, Goldman Sachs warns that the market's forecast for profit margins in 2026 may be overly optimistic. Goldman Sachs' Chief U.S. Equity Strategist David Kostin noted that the S&P 500's earnings per share grew by 11% year-over-year, far exceeding analysts' predicted 4%. About 60% of listed companies reported earnings above expectations, with an optimistic corporate outlook, as 58% of companies raised their 2025 earnings guidance. However, Kostin expressed skepticism about the "significant expansion" of profit margins in 2026, predicting that analysts will downgrade forecasts in the coming quarters. Tech giants performed strongly, with earnings growth of 26%
According to Zhitong Finance APP, despite U.S. companies' earnings performance exceeding expectations in the second quarter, Goldman Sachs warns that the market's general forecast for profit margins in 2026 may be overly optimistic.
David Kostin, Goldman Sachs' chief U.S. equity strategist, pointed out in a report to clients on August 15 that the S&P 500 index's earnings per share grew by 11% year-on-year, nearly three times the analysts' previous forecast of a 4% increase.
This outstanding performance is mainly due to analysts significantly lowering their expectations earlier this year. About 60% of listed companies reported earnings exceeding expectations by more than one standard deviation, reflecting that the previous earnings expectation threshold was set too low.
Corporate outlooks have also clearly turned optimistic. 58% of companies raised their performance guidance for 2025, double the rate from the first quarter. Analysts subsequently raised earnings forecasts for most industries for the end of 2025 and 2026, although they still expect the S&P 500 index's earnings growth to slow from 11% in the second quarter to 7% in the second half of this year.
Profit margins have become a key concern. Kostin stated that although the impact of tariffs has been weaker than expected so far, the implied "significant expansion" in the 2026 profit margin forecast does not seem realistic—even if companies can continue to offset rising cost pressures. He expects analysts to lower their forecasts in the coming quarters, but the extent will not exceed long-term trend levels.
The weakening dollar provides additional support, driving nominal sales growth for large companies in the quarter. However, when calculated at fixed exchange rates, the actual sales growth of the S&P 500 index has slowed, and small and medium-sized enterprises have experienced contraction. Analysts currently predict that sales trends across market capitalization segments will stabilize in the second half of 2025.
Tech giants once again lead performance. The "Seven Giants of U.S. Stocks" saw earnings growth of 26%, exceeding market expectations by 12 percentage points. Although NVIDIA (NVDA.US) has yet to release its earnings report, Wall Street has raised the group's 2026 capital expenditure estimate by 29% to $461 billion. Year-to-date, these giants' expected earnings per share for 2026 have risen by 1%, while other components of the index have declined by 4%
