We are in the heart of the Q2 earnings season, with almost a thousand companies on the docket to come out with results this week, including 139 S&P 500 members. With more than half of S&P 500 results already out, we will have seen results from more than 80% of the large-cap index’s total membership by the end of this week.

A few high profile negative surprises from the likes of Facebook and Netflix (NFLX Quick QuoteNFLX - Free Report) notwithstanding, the Q2 earnings season has sustained the positive momentum in place over the last few quarters. Overall growth is steadily moving towards the Q1 level, with all around positive surprises and plenty of momentum on the revenues side. Importantly, while estimates for Q3 have nudged down a bit in recent days, they are holding up nicely.

The blended Q2 earnings growth (blending the reported with the unreported) at present of +23.6% is below the preceding quarter’s +24.6% level. But given the momentum we have seen from the 265 S&P 500 members that have reported already, both in terms of growth as well as positive surprises, we can see Q2 earnings growth moving past the Q1 level as the remainder of this earnings season unfolds.

Let me share one standout feature the Q2 results thus far before we get into the scorecard. This standout feature pertains to revenues, both in terms of growth rates as well as the proportion of companies beating revenue estimates. You can see in the comparison charts below.

On the revisions front, estimates for Q3 have come down a bit but otherwise remain stable.

Q2 Earnings Season Scorecard (as of July 27^th, 2018)

We now have Q2 results from 265 S&P 500 members that combined account for 66.2% of the index’s total market capitalization, with total earnings for these 265 companies up +23.6% from the same period last year on +10.1% higher revenues, with 80.8% of the companies beating EPS estimates, and 72.1% surpassing revenue estimates.

The comparison charts below put results from these 265 index members in a historical context.

As you can see, the earnings growth pace is a tad bit below the prior-quarter’s level, but revenue growth pace is clearly tracking higher.

For the Tech sector, we now have results from 65.5% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech sector companies are up +35.3% from the same period last year on +12% higher revenues, with 90% beating EPS estimates and 87.1% revenue estimates.

We will get the sector’s complete picture after the Apple (AAPL Quick QuoteAAPL - Free Report) report this week, but the results thus far are clearly tracking above the sector’s performance in other recent periods.

Overall Expectations for 2018 Q2

Looking at Q2 as a whole, combining the actual results from the 265 index members with estimates from the still-to-come 235 companies, total earnings are expected to be up +23.6% from the same period last year on +8.8% higher revenues, with double-digit earnings growth for 12 of the 16 Zacks sectors. This would follow +24.6% earnings growth in 2018 Q1 on +8.6%, the highest growth in almost 7 years.

The table below shows the summary picture for Q2, contrasted with what was actually achieved in Q1.

The Earnings Growth Peak

The chart below compares current Q2 earnings growth expectations with what was actually achieved in the preceding 5 quarters and what is expected in the following 4 quarters. 

When market commentators talk about earnings growth peak, it is the growth comparison in this chart they are referring to. Looking at this chart, it is obvious that growth has peaked already, with the pace decelerating going forward.

We should keep in mind however that actual results typically come in better than expected, with actuals exceeding estimates in the 3% to 5% range. This means that the 21% growth pace currently expected in Q2 will likely be closer to the 2018 Q1 tally when all is said and done.

The chart below shows the growth pace on trailing 4-quarter basis, which tends to smooth out the quarter-to-quarter jumps.

The two charts above provide different answers to the ‘peak earnings’ question. The first chart shows that the growth rate likely peaked in 2018 Q1, while second chart shows the expected to ‘peak’ to arrive in the last quarter of the year.

We should keep in mind that this earnings cycle got underway back in 2009 when the U.S. economy got out of its last recession. By this time, earnings growth should have come down to the historical ‘normalized’ pace in the mid-single digits level. The reason we have these impressive growth numbers is thanks mostly to the effect of the tax cuts, which will start wearing off towards the end of 2019.

In other words, earnings likely haven’t peaked yet. But with this cycle so long in tooth, we are steadily moving towards that stage.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Here is a list of the 960 companies including 139 S&P 500 and reporting this week.