Impressive start to Q2 earnings this week with 17 of the biggest S&P 500 companies (market cap greater than $200 billion) reporting EPS results that were above street expectations by an average of 7.6%. The biggest EPS surprises came from Citi, JP Morgan, and GE.

13 of the 17 companies reported sales that were above expectations (76%) by an average of 2.2%. The biggest sales beats came from GE, Goldman Sachs, and Morgan Stanley.
 

The results for this week pushed the aggregate Q2 EPS growth rate up from 5.7% last week to 6.7% this week. And Q2 sales growth was pushed up from 3.8% to 4.0%.
 

2025 EPS growth rate is now projected to be 8.7%. Earnings growth will have to carry stock market returns because valuations are stretched. The forward PE is around 22.5x and the trailing PE is 25x, both valuation metrics are about 20%+ above their 10-year averages.

Next week we get 12 more important companies reporting earnings results, including Google and Tesla on Wednesday.
 

Pretty good week for economic data as well. Core inflation came in better than expectations, while retail sales & industrial production were strong. That makes 7 economic data points coming better than expectations compared to 2 misses so far this month. Already we have more economic beats than last months (only 6 beats total) and we are only half way through.
 

The 4 week moving average for unemployment claims dipped back below 230K this week after briefly looking like it might break above the 2023 highs. Signaling the labor market is still stable.

Next week is light on economic data but we’ll get new home sales and durable goods orders.

Valuations are beyond stretched but as long as interest rates remain stable and earnings keep showing solid growth, with a strong beat rate, then it can support higher valuations for now.

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