After an 'extraordinary' earnings season, here's the next big positive for stocks

Following a spectacular second quarter earnings season that propelled stocks to record highs this summer, a new opportunity is emerging to drive the bull market into the fall - if two conditions are met. First, oil prices must not surge above $100 per barrel. Second, Federal Reserve Chair Kevin Warsh should avoid initiating a rate-hiking cycle.

The catalyst for this potential rally lies in a combination of rising analyst profit estimates and fewer estimate cuts. Earnings figures are defying the typical seasonal revision trend and are consistently improving. Evercore ISI analyst Julian Emanuel highlighted this in a recent report, noting that earnings are defying the usual downward revision pattern.

Emanuel also observed that estimates for the median S&P 500 company have increased across key metrics such as top-line growth, bottom-line earnings, and free cash flow returns. Emanuel remarked, "We are living in extraordinary times." The data indeed supports this sentiment. According to FactSet, approximately 86% of S&P 500 companies have reported earnings per share above estimates for the second quarter, surpassing the five-year average of 78% and the 10-year average of 76%.

If this figure holds true, it would represent the highest percentage of positive EPS surprises since the second quarter of 2021, when 87% of companies beat estimates. Additionally, S&P 500 companies are currently posting earnings 26.5% above estimates, a figure that exceeds both the five-year average of 7% and the 10-year average of 7.4%.

The earnings growth rate for the S&P 500 in the second quarter is an impressive 52%. If this rate persists, it will be the fastest growth rate recorded by the index since the second quarter of 2021, when the figure reached an astounding 91.6%. These robust fundamentals, even after accounting for adjustments, are cited by Goldman Sachs strategist Ronnie Walker as a strong foundation for the ongoing market rally.