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S&P 500 Q2 Earnings Beats Hit 5-Year Highs: 3 Sector ETFs to Play
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Key Takeaways
Q2 EPS and revenue beat rates have matched their highest levels since Q3 2021.
Consumer Staples, Healthcare and Aerospace lead with perfect blended beat ratios.
XLP, XLV and ITA ETFs stand out as earnings momentum strengthens across sectors.
Q2 earnings season has started on a strong note, with robust earnings growth, solid revenue gains and a high percentage of companies beating expectations. Although only 16% of S&P 500 companies have reported so far, the early results point to resilient corporate fundamentals.
Among the 81 S&P 500 companies that have released results, earnings have climbed 40.6% year over year on 13.3% higher revenues. About 91.4% topped EPS estimates, while 81.5% beat revenue forecasts.
These early results are significantly stronger than recent quarters.Both the EPS and revenue beat rates are matching the five-year high recorded in the third quarter of 2021, underscoring the strength of the earnings season.
Why Is a Positive Earnings Surprise So Important?
Historically, stocks of companies with solid quarterly earnings growth have tanked if they miss or merely meet market expectations. After all, a 20% earnings rise may look good, but it does not indicate whether earnings growth has been accelerating or decelerating.
Also, seasonal fluctuations sometimes come into play. If a company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates can be misleading when assessing the true health of a company.
On the other hand, after extensive brainstorming and analysis of companies’ financials and initiatives, Wall Street analysts project their earnings. They combine their insights with a company’s guidance to arrive at an earnings estimate.
Thus, outperforming analysts' estimates is almost equivalent to beating the company’s own expectations as well as overall market perception. Moreover, if the margin of the earnings surprise is large, it typically drives the stock higher immediately after the release. Therefore, more than anything else, an earnings surprise can push a stock higher.
Sector ETFs Reporting Big Beat Ratios
Given the above-mentioned factors, it is not surprising that ahead of an earnings season, every investor looks for stocks that can beat market expectations.
Below, we highlight three sectors and their related exchange-traded funds (ETFs) that have reported strong beat ratios so far.
Consumer Staples – Blended Beat Ratio 100%
About 26.1% of the S&P 500 market cap in the sector that has reported so far has posted a blended beat ratio of 100%, with both earnings and revenue posting positive surprises. The sector has registered year-over-year EPS growth of 10.3% and revenue growth of 6.6%, per Earnings Trends issued on July 22, 2026.
State Street Consumer Staples Select Sector SPDR ETF (XLP - Free Report) has a Zacks Rank #2 (Buy). With geopolitical tensions persisting, inflationary threats rising due to higher energy prices, and economic uncertainty lingering, increasing exposure to consumer staples funds can bring balance and stability to investors’ portfolios.
Medical – Blended Beat Ratio 100%
About 25% of the S&P 500 market cap in the sector that has reported so far has posted a blended beat ratio of 100%. The sector has registered year-over-year EPS growth of 14.6% and revenue growth of 2.3%.
State Street Health Care Select Sector SPDR ETF ETF (XLV - Free Report) has a Zacks Rank #1 (Strong Buy).The healthcare sector is non-cyclical, providing a defensive tilt to the portfolio amid market turmoil. Plus, rapid progress and R&D in the biotech sector have been additional positives for the fund.
Aerospace – Blended Beat Ratio 100%
Companies representing 31.3% of the S&P 500's market cap in the sector have reported Q2 results, posting a perfect 100% blended beat ratio. They have also recorded 14.9% EPS growth and 14.3% revenue growth from a year ago.
Aerospace and Defense ETFs like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) could be well-positioned in the current environment, as the sector has historically outperformed during periods of heightened geopolitical tensions and increased military activity. ITA also carries a Zacks Rank #2.
View the Zacks #1 Rank List
Image: Bigstock
S&P 500 Q2 Earnings Beats Hit 5-Year Highs: 3 Sector ETFs to Play
Key Takeaways
Q2 earnings season has started on a strong note, with robust earnings growth, solid revenue gains and a high percentage of companies beating expectations. Although only 16% of S&P 500 companies have reported so far, the early results point to resilient corporate fundamentals.
Among the 81 S&P 500 companies that have released results, earnings have climbed 40.6% year over year on 13.3% higher revenues. About 91.4% topped EPS estimates, while 81.5% beat revenue forecasts.
These early results are significantly stronger than recent quarters. Both the EPS and revenue beat rates are matching the five-year high recorded in the third quarter of 2021, underscoring the strength of the earnings season.
Why Is a Positive Earnings Surprise So Important?
Historically, stocks of companies with solid quarterly earnings growth have tanked if they miss or merely meet market expectations. After all, a 20% earnings rise may look good, but it does not indicate whether earnings growth has been accelerating or decelerating.
Also, seasonal fluctuations sometimes come into play. If a company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates can be misleading when assessing the true health of a company.
On the other hand, after extensive brainstorming and analysis of companies’ financials and initiatives, Wall Street analysts project their earnings. They combine their insights with a company’s guidance to arrive at an earnings estimate.
Thus, outperforming analysts' estimates is almost equivalent to beating the company’s own expectations as well as overall market perception. Moreover, if the margin of the earnings surprise is large, it typically drives the stock higher immediately after the release. Therefore, more than anything else, an earnings surprise can push a stock higher.
Sector ETFs Reporting Big Beat Ratios
Given the above-mentioned factors, it is not surprising that ahead of an earnings season, every investor looks for stocks that can beat market expectations.
Below, we highlight three sectors and their related exchange-traded funds (ETFs) that have reported strong beat ratios so far.
Consumer Staples – Blended Beat Ratio 100%
About 26.1% of the S&P 500 market cap in the sector that has reported so far has posted a blended beat ratio of 100%, with both earnings and revenue posting positive surprises. The sector has registered year-over-year EPS growth of 10.3% and revenue growth of 6.6%, per Earnings Trends issued on July 22, 2026.
State Street Consumer Staples Select Sector SPDR ETF (XLP - Free Report) has a Zacks Rank #2 (Buy). With geopolitical tensions persisting, inflationary threats rising due to higher energy prices, and economic uncertainty lingering, increasing exposure to consumer staples funds can bring balance and stability to investors’ portfolios.
Medical – Blended Beat Ratio 100%
About 25% of the S&P 500 market cap in the sector that has reported so far has posted a blended beat ratio of 100%. The sector has registered year-over-year EPS growth of 14.6% and revenue growth of 2.3%.
State Street Health Care Select Sector SPDR ETF ETF (XLV - Free Report) has a Zacks Rank #1 (Strong Buy).The healthcare sector is non-cyclical, providing a defensive tilt to the portfolio amid market turmoil. Plus, rapid progress and R&D in the biotech sector have been additional positives for the fund.
Aerospace – Blended Beat Ratio 100%
Companies representing 31.3% of the S&P 500's market cap in the sector have reported Q2 results, posting a perfect 100% blended beat ratio. They have also recorded 14.9% EPS growth and 14.3% revenue growth from a year ago.
Aerospace and Defense ETFs like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) could be well-positioned in the current environment, as the sector has historically outperformed during periods of heightened geopolitical tensions and increased military activity. ITA also carries a Zacks Rank #2.