S&P 500 Earnings Provide Another Upside Surprise

Group 1: Earnings Performance - The S&P 500 Index reported an 81% positive surprise rate with 70% of companies showing positive growth, resulting in an aggregate growth rate of 11.4% for the second quarter [1] - Q1 estimates started at $63, fell to $60, and then rose to $64.50, while Q2 estimates began at $67, dropped to $63, and returned to $67 with actual results [2] - The weak U.S. dollar and continued pricing power due to elevated inflation contributed positively to earnings, with future quarterly estimates showing improvement [3] Group 2: Market Reactions and Analyst Predictions - Analysts had prematurely trimmed estimates for Q1 and Q2, underestimating corporations' ability to navigate uncertainty and protect profit margins [4] - The impact of tariffs on companies has been less significant than anticipated, with many companies managing to absorb costs and maintain margins [6][7] - A similar trend of falling estimates followed by actual results beating expectations was observed in Canada, with the TSX up 14.4% this year [8] Group 3: Sector Analysis - The TSX is trading at 16.3x consensus earnings for the next 12 months, the highest valuation since early 2021, raising questions about its sustainability given the sluggish housing market and tariff impacts [9] - Gold stocks have significantly contributed to the TSX's gains, with gold miners expected to grow earnings by $7.7 billion over the next year [9][10] - The reliance on gold for future earnings growth may pose risks for the TSX, as cyclical earnings typically carry lower valuation multiples [10][11]