These charts show why stocks keep rallying. Profit margins are the highest on record
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- S&P 500 companies posted a blended net profit margin of 16.9% in Q2, up from 14.8% in Q1 and 12.9% a year ago, and well above the five-year average of 12.4%.
- If the 16.9% figure holds, FactSet senior earnings analyst John Butters said it would mark the highest net profit margin since FactSet began tracking the metric in 2009.
- Alphabet and Amazon are the biggest contributors — Alphabet reported a 34% operating margin (up from 32%) and a $98 billion gain in other income from unrealized equity securities, while Amazon posted $53.4 billion in other income largely tied to its Anthropic investment and a 13.7% operating margin (up from 11.4%).
- Even excluding Alphabet and Amazon, the remaining S&P 500 still posts a 15% net profit margin — also a record high dating back to 2009.
- Eight of the 11 S&P 500 sectors are reporting higher margins than a year ago, led by technology, communication services, consumer discretionary, and energy.
- Vanguard senior economist Adam Schickling attributed the trend to operating leverage and demand, noting tech companies benefit from asset-light, scalable business models that convert revenue to profit more efficiently.
- Schickling also flagged growing competitive pressure in the tech sector as a potential future risk to those elevated margins.
Why it matters: The margin expansion is broad-based: even excluding Alphabet and Amazon, the rest of the index still sits at a record 15%, with eight of eleven sectors improving year-over-year. That means the profit story behind the rally isn't just a mega-cap story — but Schickling's warning about intensifying tech competition points to structural pressure on the sector driving much of the gains.
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