Wall Street’s Earnings Party Starts to Cool

Corporate earnings growth across the S&P 500 is expected to lose momentum in the third quarter of 2026, with 10 of the index’s 11 sectors projected to report slower year-on-year growth than in the previous quarter.

The estimates point to a more challenging earnings season for US companies, following stronger growth across several sectors in the second quarter. While many businesses are still expected to increase profits compared with the same period last year, the pace of expansion is forecast to moderate across much of the market.

Consumer Discretionary is projected to experience the sharpest slowdown, with earnings growth expected to fall from 91 per cent year-on-year in the second quarter to just 2 per cent in the third quarter.

The sector includes businesses whose products and services are generally considered non-essential, such as retailers, restaurants, travel companies and consumer goods brands. Its performance can offer insight into household spending patterns and the resilience of consumer demand. The projected deceleration suggests that the strong earnings growth recorded in the previous quarter may be difficult to sustain.

Communication Services is also expected to record a substantial moderation. Earnings growth in the sector is forecast to decline from 126 per cent in the second quarter to 66 per cent in the third quarter. Although the projected rate remains comparatively strong, the lower figure would represent a significant reduction in the pace of year-on-year expansion.

The Financials sector is expected to see earnings growth ease from 22.3 per cent to 2.4 per cent. The forecast indicates a much slower rate of profit expansion for financial companies, although actual results will depend on individual institutions and the conditions affecting their businesses.

Energy and Information Technology, identified in the estimates as the S&P 500’s strongest-performing sectors, are also projected to experience slower growth.

Energy earnings growth is expected to moderate from 147.8 per cent in the second quarter to 122.5 per cent in the third. Information Technology is forecast to see growth decline from 77.9 per cent to 65.9 per cent.

Despite the expected slowdowns, both sectors would continue to record substantial year-on-year earnings growth if the projections are realised. Their performance could therefore remain an important influence on the broader index during the reporting season.

The distinction between slower growth and falling earnings is important. A reduction in the year-on-year growth rate does not necessarily mean that companies are making less profit than they did in the previous quarter. Instead, it indicates that the percentage increase compared with the corresponding period a year earlier is expected to be smaller.

Comparisons can also be affected by the earnings recorded in the previous year. When a sector reports a sharp increase in profits over one period, maintaining the same growth rate in the following quarter can become more difficult, particularly if the earlier figure provides a high comparison base.

This context is relevant to sectors such as Energy and Consumer Discretionary, where the forecasts show particularly large changes in growth rates. The estimates alone do not establish whether the projected slowdown reflects weaker demand, changes in commodity prices, company-specific factors or comparisons with unusually strong results a year earlier.

For investors, the coming reporting season will provide an opportunity to assess how closely company results match expectations and whether management teams anticipate further moderation in the months ahead.

The S&P 500, which tracks 500 leading US-listed companies, is widely followed as a measure of the American equity market. Its sector composition means that earnings developments across technology, financial services, consumer businesses, energy and communications can have significant implications for the index’s overall profit outlook.

However, the expected slowdown is not uniform across all industries. According to the estimates, only one of the 11 sectors is not projected to record lower year-on-year earnings growth in the third quarter than in the second. The figures supplied do not identify that sector or provide its expected growth rate.

The figures also represent forecasts rather than confirmed company results. Actual earnings may differ as businesses report revenue, costs, margins and profits, while analysts revise their expectations in response to new information.

Investors will be watching for signs of how companies are managing operating expenses, responding to consumer demand and maintaining profitability in a changing economic environment. Guidance on future earnings may prove particularly important, as markets often react to management expectations as well as reported results.

The technology sector’s projected growth of 65.9 per cent would remain high relative to the figures for several other industries, even after the expected decline from 77.9 per cent. Its results could therefore attract considerable attention as investors assess the durability of profit growth among major technology companies.

Energy companies face a different set of influences, including movements in oil and gas prices, production levels and operating costs. The projected reduction from 147.8 per cent to 122.5 per cent indicates slower growth, but the forecast still points to a strong increase compared with the same quarter last year.

For Financials, the expected moderation to 2.4 per cent places greater emphasis on the details behind individual results. Differences in lending activity, funding costs, credit conditions and capital markets can lead to varied outcomes across banks, insurers and other financial institutions.

Consumer Discretionary companies, meanwhile, will offer clues about the strength of spending on goods and services that households can postpone or reduce when budgets come under pressure. With forecast growth falling to 2 per cent, investors may look closely at sales trends, margins and company guidance for evidence of how demand is evolving.

The broader picture is one of slower earnings growth across most S&P 500 sectors, rather than an across-the-board contraction in profits. The coming weeks of company reports will help determine whether the forecasts accurately reflect underlying business conditions.

With projected growth rates varying significantly between sectors, investors are likely to focus on both the headline figures and the factors driving them. The third-quarter earnings season will provide a fresh test of corporate profitability and help shape expectations for the next phase of the US market’s performance.