Weekly Wisdom: Broad-Based Earnings Strength Signals Resilience

By Hightower Great Lakes on August 20, 2025

Exceeding the Expectations

Despite lowered forecasts heading into Q2, earnings have not only surpassed those expectations, but they’ve also exceeded even the more optimistic pre-Liberation Day projections. S&P 500 earnings per share (EPS) growth is tracking near 12%, more than double the sub-5% consensus estimate as of June 30.

This marks the third-consecutive quarter of double-digit earnings growth for the index. Both the percentage of companies beating EPS estimates and the size of those beats are running above their ten-year averages.

Q2 EPS now stands at $66.84, over $1.30 higher than its level on Liberation Day. So far, 81% of companies have reported earnings above expectations, outpacing the five-year average of 78%.

Revenue beats are also coming in at an 81% rate, far above the five-year average of 70%, and among the highest ever recorded. U.S. corporations continue to demonstrate resilience in the face of tariffs, successfully managing costs, renegotiating supplier terms, and adapting supply chains.

Adding to the optimism, the term “recession” was mentioned on just 16 earnings calls this season, well below the five-year average of 74 and the ten-year average of 61. That’s an 87% drop from Q1 2025, when recession concerns were cited on 124 calls.[1] 

Chart 1: S&P 500 Q2 EPS Progression

Strength Extending Beyond Tech

Importantly, this quarter’s earnings strength isn’t just a story about technology or the Magnificent 7 (MAG7). The performance has been broad-based, with most sectors contributing to the S&P 500’s 11.8% earnings growth in Q2. In fact, 9 out of 11 GICS sectors have exceeded their July earnings expectations, and 8 out of 11 have even surpassed their April 1st forecasts, which predates Liberation Day.

Since June 30, positive earnings surprises reported by companies in the Financials, Communication Services, Information Technology, and Consumer Discretionary sectors have been the largest contributors to the increase in the overall earnings growth rate for the index over the period.

On the revenue side, 10 sectors are reporting year-over-year growth, led by Information Technology, Health Care, and Communication Services. The Energy sector stands alone in posting a year-over-year revenue decline.

Notably, all six sub-industries within the Information Technology sector have posted year-over-year growth in both earnings and revenues. Leading the charge are Semiconductors, Electronic Equipment & Components, Software, and Communication Equipment, highlighting the sector’s depth and resilience.

Chart 2: S&P 500 Sector-Level Earnings Surprise %[2]

Housing Sector Showing Signs of Revival

After a prolonged period of poor performance, the U.S. housing market is beginning to show signs of renewed momentum. In Q2 2025, the real estate sector posted 4.2% y/y earnings growth and 6.5% y/y revenue growth, both exceeding expectations and signaling a potential inflection point.

One key catalyst is the recent decline in mortgage rates. The average 30-year fixed rate fell to 6.65%, the lowest level of the year and the most favorable since September 2024.[3] With the Federal Reserve expected to begin cutting rates this fall, the backdrop for housing is increasingly constructive.

Demographic tailwinds also remain strong. An estimated 5 million millennials are still waiting to purchase their first home, representing substantial pent-up demand.

Meanwhile, homebuilders have continued to ramp up production over the past 15 years, creating a more favorable supply environment. Together, these dynamics suggest that lower rates could unlock a new wave of housing activity over a prolonged period.

Notably, Home Depot (HD) surged over 4% following its earnings release, buoyed by strong contractor demand, steady full-year guidance, and bullish commentary on customer momentum and pricing. Most importantly, expressed confidence that lower rates could re-energize the home improvement market, which is what really drove the surge.

Meanwhile, D.R. Horton (DHI), America’s largest homebuilder, is quietly up nearly 27% over the past month. Investor sentiment was further boosted by news that Berkshire Hathaway initiated a new stake in the company, a move widely interpreted as a vote of confidence in the housing market’s long-term prospects.

Click here to read last week’s Weekly Wisdom (8/13).

Disclosures

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[1] FactSet, As of August 2025.

[2] Source: FactSet, As of August 2025.

[3] Bankrate, As of August 2025.