A recent analysis of market earnings suggests that significant capital gains from major technology and investment firms are currently distorting the reported profit margins of the S&P 500 index. While these large-cap companies are reporting strong numbers, the underlying operating performance of the broader market may be masked by accounting rules.
The Impact of GAAP Accounting on Reported Earnings
According to financial experts, standard Generally Accepted Accounting Principles (GAAP) require corporations to record both unrealized gains and losses related to investments directly within their income statements. This mandate allows a small cluster of large, technology-heavy companies—such as Alphabet, Amazon, and Meta—to create substantial variability in the aggregate earnings growth metrics reported by the S&P 500.
When examining the data, Joe Abbott reported that the S&P 500’s first-quarter 2026 Earnings Per Share (EPS) reached $75.03. This figure was significantly inflated by gains totaling $5.22 per share derived from mark-to-market (MTM) investments and tax benefits recognized under GAAP accounting across three specific companies: Alphabet contributed $3.14 in MTM gains, Amazon provided $1.42 in MTM gains, and Meta accounted for a $0.66 tax reversal gain.
For the second quarter of 2026 (so far into the reporting cycle), the S&P 500’s EPS was reported at $90.55. This figure saw an exceptional boost from Alphabet’s considerable MTM gains, particularly those linked to SpaceX, adding $8.96 to the index’s total EPS.
Adjusted Metrics Offer a Different View
While adherence to GAAP reporting is mandatory for all listed companies, it is noted that over 95% of S&P 500 firms also release non-GAAP metrics in their earnings reports, investor briefings, and conference calls. By removing the impact of these large MTM gains, analysts observed a reduction in the reported year-over-year (y/y) growth rates.
Specifically, when adjusting for investment gains, the S&P 500’s Q1 y/y earnings growth rate decreased from 19.0% to 10.6%. Similarly, the Q2 y/y growth rate fell from 35.8% down to 22.3%. Despite this adjustment, experts concluded that these remaining figures still represent robust and considerable rates of growth for the market.
