S&P 500 earnings get boosted by paper gains
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CHART 1 • S&P 500 earnings growth boosted by paper gains
There has been a surge in S&P 500 earnings growth in 2026, with year-on-year growth approaching 50%. That is highly unusual outside a recovery from a major crisis.
Part of the increase reflects genuinely strong corporate profits. But the headline figure has also been inflated by enormous accounting gains by a small number of very large technology companies. Alphabet, for example, reported US$98 billion of net other income, largely because the estimated value of its equity investments had risen.
This was not US$98 billion earned from Google Search, YouTube or its cloud business. This was also not US$98 billion received in cash. It was mainly a paper gain recorded because Alphabet’s investments had become more valuable.
Because Alphabet is one of the largest companies in the S&P 500, that gain helped push earnings growth for the entire index to a much higher level. US corporate earnings are still growing strongly, but the headline figure exaggerates the improvement in companies’ underlying businesses.
Source: Charlie Bilello
For investors, the lesson is simple. The S&P 500 earnings figure looks extraordinarily powerful, but part of that strength comes from gains that may not be repeated and could even reverse. Charts showing earnings growth close to 50% like this therefore need to be interpreted with care, especially if that figure hasn’t been caused from a rebound after a crisis.
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