A record-breaking 26.5% earnings surprise rate for the S&P 500 in Q2 2026 was heavily influenced by two specific outliers. Removing these reveals a more grounded, yet still impressive, performance across the broader market.
Recent reports have highlighted a staggering 52% year-over-year earnings growth rate for the S&P 500 in the second quarter of 2026. While these numbers are undeniably impressive, a deeper dive into the data reveals that the aggregate figures were skewed by unusual activity in the communication services and consumer discretionary sectors. Specifically, net unrealized gains on equity securities and private investments at two major firms significantly inflated the overall surprise rate.
When analysts strip away the impact of these two outliers, the earnings surprise rate for the index drops from a record 26.5% to a more modest 10.8%. While this adjustment is significant, it is important to note that 10.8% remains well above the 5-year and 10-year historical averages of 7.0% and 7.4%, respectively. This indicates that the underlying health of corporate America remains strong, even without the benefit of one-time accounting gains.
Investors have been quick to reward sectors that demonstrated genuine operational strength during the quarter. Health care, financials, and energy sectors saw total returns of 9.0%, 7.5%, and 22.8% respectively through early September. Interestingly, the communication services sector, despite reporting the highest headline earnings surprise percentage, saw its total return remain flat, suggesting that investors are looking past headline numbers to evaluate the quality of earnings.
As we move into the latter half of 2026, the ability of companies to repeat these earnings surprises will be a key focus for institutional investors. With interest rates remaining a point of contention due to geopolitical pressures, the market is likely to continue favoring companies that can demonstrate consistent, organic revenue growth rather than those relying on financial engineering or unrealized investment gains.