The S&P 500 is on track for the best quarterly earnings growth since 2009 as companies smash expectations

• The S&P 500 is on track for its best quarterly earnings growth since 2009, data shows.
• Companies are smashing expectations, with 88% so far outstripping estimates in Q2.
• Strong earnings are supporting stocks, but the delta COVID-19 variant remains a risk.

S&P 500 companies are on track for the best earnings growth since 2009, with companies smashing estimates as the US economy bounces back to life from COVID-19 lockdowns.

The strong quarter is helping support stocks despite high equity prices, rising inflation, and the threat of the delta coronavirus variant.

Earnings for S&P 500 companies are expected to grow 78.1% year-on-year in the second quarter, according to figures from financial data company Refinitiv, released Friday. That would be the best quarterly performance since the final three months of 2009, during the initial rebound from the financial crisis.

Around a quarter of the 500 companies that make up the benchmark US stock index have reported. Those in the industrial, consumer discretionary, and financial sectors are set to do the best as they profit from the reopening of the economy and favorable comparisons to last year's weak second-quarter earnings.

So far, 88% of S&P 500 companies have beaten earnings per share estimates for the second quarter, according to data provider FactSet.

The strong results put the S&P 500 on track to be the best quarter for beats since FactSet started tracking the data in 2008. The current record was registered in the first quarter of 2021, when 86% of companies beat estimates.

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And companies are raising their expectations for earnings and sales as the economic rebound continues. For example, Coca-Cola stock jumped on Wednesday when it increased its revenue and earnings outlook, citing the strong economy.

Investors have not reacted strongly to the second-quarter earnings, given that the S&P 500 has already soared more than 90% since its pandemic-induced crash in March 2020.

But the strong earnings are helping the benchmark US stock index hover at record highs.

JPMorgan analysts, led by Dubravko Lakos-Bujas, on Tuesday upgraded their year-end target for the S&P 500 from 4,400 to 4,600, which would be roughly a 5% increase from Friday's level.

The index "should be supported by strong earnings growth and capital return until 2023," Lakos-Bujas and colleagues said in a note.

Importantly for investors, profit margins are strong despite rising inflation and some reports of higher costs. John Butters, senior earnings analyst at FactSet, said net profit margin for the S&P 500 for the second quarter is expected to be 12.4%.

"If 12.4% is the actual net profit margin for the quarter, it will mark the second-highest net profit margin for the index since FactSet began tracking this metric in 2008, trailing only last quarter's net profit margin of 12.8%," he said.

Yet, there are risks ahead, not least the fact that the coronavirus pandemic is far from over. Delta variant cases have soared in Britain, and survey data suggests the numbers are slowing the country's economic recovery.

Cases are now on the rise again in the US, contributing in part to a sharp sell-off on Monday, which saw the S&P 500 drop 1.6% and the Dow Jones fall 2.1%.

However, many investors are hoping high vaccination rates can keep advanced economies ticking over. Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note: "We see reasons to look beyond the delta variant headlines and stay risk-on, with a tilt toward reflation and reopening beneficiaries."