Earnings Season Has Been Great. But the Numbers Don’t Tell the Whole Story.

Profits have nudged the S&P 500 up 3.8% since the start of earnings season. (TIMOTHY A. CLARY / AFP via Getty Images)

Earnings season has gone well. It’s companies’ commentary—their words, not their numbers—that are concerning.

Aggregate earnings for the S&P 500 companies that have reported second-quarter results have beaten analysts estimates by about 8%, according to Evercore. Sales are growing, beating expectations by just under 3%, and the resulting better-than-expected increase in profit margins is bringing earnings growth to just under 8%. All sectors except materials are beating on earnings, showing most sectors—representing much of the U.S. economy—are thriving.

Plus, companies’ outlooks for the current quarter and full year have looked strong enough overall. The percentage of companies increasing guidance this earnings season has risen about 10 percentage points, to 30%, according to RBC, while the percentage of firms reducing guidance has dropped more than 20 percentage points, to below 30%. Many companies have maintained their forecasts.

The profit picture, holistically, has nudged the S&P 500 up 3.8% since the end of June, the start of earnings season. True, some stocks have tumbled even after reporting solid results because they came into earnings hot, already reflecting an optimistic scenario for profits. But there have also been many stocks that jumped after providing both solid results and guidance. Meta Platforms stock is up 11% since earnings, while Microsoft is up 2%, to name just a couple examples.

Big Tech’s strong results have boosted that entire artificial-intelligence trade, with many chip makers and manufacturers of components and materials that help build data centers seeing their stocks remain in the green since the end of June.

The point is that the market’s rally is rooted in improving earnings trends. Analyst’s aggregate 2025 profit forecasts for S&P 500 companies has inched just over 1% since the start of earnings season, according to FactSet.

The problem: What has become a more expensive market —the S&P 500 neared a new record high Thursday—is not reflecting much of the risk, which is showing up in what companies are telling analysts on earnings calls. RBC’s chief U.S. equity strategist, Lori Calvasina, found excerpts from earnings calls that illustrate that many management teams are nervous about their outlooks.

“Our view isn’t driven by the numbers, which are still fine,” Calvasina writes. “The problem, from our perspective, was what the companies said on their earnings calls.”

Amazon.com said “It’s hard to know where the tariffs are going to settle, particularly in China. If costs go up over time, we’re unsure at this point who’s going to end up absorbing those higher costs.”

Royal Caribbean warned that, even though its data show that the majority of its customers intend to spend more on travel in the next year, “more than half of consumers tell us they are booking closer to their departure date than they used to and for the people who intend to travel over the next 12 months, the majority have not yet booked.” That could signal the beginning of a deterioration in demand.

Air Products & Chemicals, which sells to a number of customers across various sectors, said, “We remain cautious in our outlook, recognizing the significant economic uncertainties around the world. Our business is directly not affected that much [by tariffs], but our customers are, and sometimes, our suppliers are. And that’s the source of inflation we see**,**” the company said, giving a nod to the fact that tariff-driven inflation could dent demand for industrial gases.

Aptiv, which makes components that go into vehicles, said, “Looking at the second half of the year, we remain in a period of uncertainty, driven by evolving trade and regulatory policies and remain cautious that consumer demand could weaken in the back half of the year.”

Booking Holdings said, “We see at the lower end, more careful behavior of [the] US consumer.”

So, while companies’ financial forecasts look strong today, executives are verbally signaling weakening confidence in those forecasts. As tariffs have crept higher over the past few weeks, those outlooks could prove too optimistic. The reality is that inflation hasn’t yet dropped to the Federal Reserve’s goal, and there’s no guarantee that the Fed will cut rates soon. Consumer and business spending could disappoint.

And companies are well aware of that—a risk to the market.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com