S&P 500 EPS Surges 12% Year-Over-Year, HSBC Raises Year-End Target

U.S. stocks delivered a stellar performance in the second quarter of 2025, with the S&P 500 index reporting a 12% year-over-year increase in earnings per share (EPS). This marks the third consecutive quarter of double-digit growth for the benchmark index. The robust earnings were largely driven by the technology sector, particularly the "Magnificent Seven" tech giants, which saw their EPS surge by approximately 25%. Excluding technology stocks, the remaining components of the index reported a 6% year-over-year increase in EPS. Additionally, the financial sector showed strong performance, with EPS growing by 12%.

In response to these impressive results, HSBC has raised its year-end target for the S&P 500 index to 6500 points. Analysts at the bank cited the better-than-expected second-quarter earnings and the resilient macroeconomic backdrop as key factors behind this upward revision. They now anticipate a 12% year-over-year increase in EPS for the S&P 500 in 2025, surpassing previous estimates of 9% and the broader market consensus of 11%.

Despite import tariffs hovering around 19%, their impact on corporate earnings has been relatively mild. The S&P 500 index achieved a new four-year high in net profit margin during the second quarter. However, consumer-related sectors faced pressure, with profit margins declining by approximately 20 basis points. Analysts noted that companies most affected by tariff concerns were primarily in the consumer staples sector. For the remainder of the year, they expect the overall profit margin of the S&P 500 to remain stable, as strength in the technology and financial sectors offsets pressures in the consumer discretionary and staples sectors.

Artificial Intelligence (AI) continues to be a significant growth driver. Companies such as Amazon, Alphabet, Meta, and Microsoft have maintained their capital expenditure guidance, with these four firms expected to spend a combined $410 billion on capital expenditures by 2026. This amount represents roughly one-third of the total capital expenditures by S&P 500 index constituents.

HSBC analysts highlighted that market concentration is increasing, with the top 10 companies in the S&P 500 contributing approximately 32% of earnings, 38% of market capitalization, and 44% of market returns. However, they believe that the strong balance sheets of these companies, as well as the overall index, will mitigate concerns related to market concentration.

Looking ahead, potential risks include inflationary pressures due to tariffs or labor supply constraints. Conversely, favorable factors include easing geopolitical tensions, economic resilience, and productivity gains from AI advancements.