Although U.S. corporate earnings surpassed expectations in Q2, Goldman Sachs warns that the consensus 2026 profit margin forecasts may be overly optimistic.

In an August 15 report to clients, David Kostin, Goldman's chief U.S. equity strategist, noted that S&P 500 earnings per share (EPS) grew 11% year-over-year—nearly triple analysts' earlier forecast of a 4% increase.

This outperformance stemmed largely from analysts significantly lowering expectations earlier this year. About 60% of companies reported earnings exceeding estimates by at least one standard deviation, reflecting previously set low bars for profit expectations.

Corporate outlooks also shifted markedly toward optimism. Fifty-eight percent of firms raised their 2025 guidance, double the Q1 proportion. Analysts subsequently raised 2025-end and 2026 earnings forecasts for most sectors, though they still expect S&P 500 profit growth to slow from Q2's 11% to 7% in H2 2025.

Margins emerge as a key concern. Kostin stated that despite tariffs having weaker-than-expected impacts so far, the "significant expansion" implied in 2026 margin projections appears unrealistic—even if firms sustain cost-pass-through capabilities. He anticipates analysts will trim forecasts in coming quarters, though not beyond long-term trend levels.

A weaker dollar provided an additional boost, lifting large-cap nominal sales growth. However, on a constant-currency basis, S&P 500 real sales growth slowed, while small- and mid-cap sales contracted. Analysts now project sales trends stabilizing across market-cap tiers in H2 2025.

Tech giants again led earnings. The "Magnificent Seven" delivered 26% profit growth, beating consensus by 12 percentage points. Though NVIDIA (NVDA.US) has yet to report, Wall Street raised the group's 2026 capex estimate by 29% to $461 billion. Year-to-date, 2026 EPS expectations for these titans rose 1%, versus a 4% decline for the rest of the index.