Strong second-quarter results from major U.S. companies pushed stock indexes to fresh highs and eased worries that the rally leans too heavily on a small group of artificial intelligence stocks. About 86% of S&P 500 companies beat earnings estimates, but Alphabet and Amazon alone accounted for about 71% of the increase in blended S&P 500 earnings since July.
Stronger-than-expected second-quarter earnings from major U.S. companies pushed stock indexes to fresh highs and eased concerns that the rally relies too heavily on a small group of artificial intelligence companies, the Wall Street Journal reported.
Broad earnings beat lifts indexes
About 86% of the more than 440 S&P 500 companies that have reported results beat analysts' estimates, according to FactSet. The index is on course for its seventh consecutive quarter of double-digit earnings growth. Upbeat results from Palantir, Caterpillar and Walt Disney helped major indexes post their strongest weekly gains since April.
Energy earnings surge on higher oil prices
S&P 500 blended earnings increased by roughly 50%, the strongest growth since the stimulus-driven recovery in 2021. Energy-sector earnings rose more than 147%, followed by gains of around 117% for communication services, 92% for consumer discretionary companies and 70% for technology.
Higher oil prices linked to the Iran war drove much of the energy sector's growth. Exxon Mobil's profit more than doubled to its highest level since 2022. Chevron reported record quarterly earnings.
AI spending lifts Amazon and Microsoft
AI spending continued to drive results across other sectors. Amazon shares jumped 15% in one session after cloud-computing sales accelerated.
Microsoft added a record $450 billion in market value after results eased concerns about returns on data-center and chip spending.
Demand for generators and construction equipment used in data centers also helped Caterpillar increase total sales and revenue by 24%.
Concentration and valuation risks remain
Still, earnings growth remains concentrated. Alphabet and Amazon accounted for about 71% of the increase in blended S&P 500 earnings since July. Excluding the two companies would cut growth from about 50% to 32%.
Valuations also remain elevated: the S&P 500 traded at around 28 times trailing earnings last week, below May's level above 29 but well over its 10-year average of 22.5. Investors will turn next to earnings from Cisco and Applied Materials, along with the latest U.S. inflation report.
Source: Investing.com
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