S&P 500 earnings are growing at some of the fastest rates of the last 30 years.

Why it matters: Giant earnings growth should reassure investors that the AI boom is more than a speculative mania. It's actually producing profits!

Yes, but: A couple of features of the current AI-driven boom are skewing the numbers and are likely overstating just how profitable things are.

By the numbers: With results from about 62% of S&P 500 companies in hand, earnings per share for the index is roughly 47% higher than last year, according to FactSet data.

Context: That's impressive. The only time we typically see growth like that is in the aftermath of severe recessions.

• For instance, the S&P 500 posted 40% year-on-year earnings growth in the first and second quarters of 2010, thanks to easy comparisons with the worst of the Great Recession the previous year.
• Ditto for the year after the worst of the COVID economic collapse, when S&P 500 earnings surged almost 80% in the third quarter of 2021.

Reality check: So far, the top contributors to the S&P 500's massive quarter are hyperscalers Amazon and Alphabet, according to FactSet data.

• Amazon's second-quarter earnings grew 242%.
• Alphabet's grew by almost 300%.

Caveat: Those insane gains, however, were largely the result of large, non-operating, unrealized gains on equity stakes these companies hold in other tech companies.

• Amazon earnings were flattered by one such gain, largely related to its ownership stake in AI lab Anthropic, which it penciled in at $53.4 billion.
• Alphabet, meanwhile, reported a seismic gain of some $99 billion primarily related to its equity stake in Elon Musk's SpaceX.

State of play: Some analysts have felt the need to strip out earnings from these giants to get a better sense of the underlying trend for earnings, which — it should be said — is still strong.

What they're saying: "Excluding Alphabet and Amazon.com, the blended earnings growth rate for the S&P 500 for Q2 2026 would fall to 28.8% from 47.4%. However, this would still mark the second consecutive quarter of earnings growth above 20% and the seventh consecutive quarter of double-digit earnings growth for the index," FactSet analyst John Butters wrote.

The intrigue: There is another element to keep in mind when contemplating the profitability of the blue chips.

• The accounting conventions of the current boom in investment spending on AI data centers should almost automatically boost aggregate profits.

Zoom in: Most spending that companies do, say on wages for employees, is deducted from sales, as costs or expenses. The company's profit is what remains.

• But capital expenditures are treated differently.
• Capital expenditures — such as big spending on data centers — are recognized as property on the company's balance sheet. The costs of those investments are only recognized over time, in the declining value of that property.
• By contrast, the companies selling stuff to hyperscalers, neoclouds or others making big capex investments — in the case of AI, say, chipmakers — collect their money and count those sales and profits right away.

TL;DR: In the aggregate, this dynamic can temporarily overstate how profitable the system is, because the bill for all that spending isn't being tallied up as quickly as the profits that spending is generating for vendors.

The bottom line: At first glance, this seems like a golden age of profits for corporate America. And things are pretty good.

• But it always pays to read the fine print.

Less information from the Federal Reserve would likely make the markets more volatile and market pricing more "error-prone," Goldman Sachs chief economist Jan Hatzius wrote in a note yesterday.

Why it matters: Markets won't stop trying to predict the Fed's actions in the face of less information — investors will likely make the same guesses, only with less evidence and a greater chance of getting it wrong, he argued, echoing the concerns of several other analysts and economists.

Catch up quick: Federal Reserve chairman Kevin Warsh wants to reveal less about the Fed's "reaction function" — how the central bank connects economic data and news to its policy decisions.

• He wants financial markets to evaluate the economy directly — rather than through the lens of "what will the Fed do."
• That new strategy, on display at Warsh's press conference last week, didn't sit well with the bond market, as Axios' Neil Irwin explained.

Zoom in: Hatzius says markets will not stop trying to anticipate the Fed just because it's giving out fewer clues.

• "Participants in short-term interest rate markets—where Fed communication matters most—price what they think the Fed will do, not what it should do," Hatzius wrote.
• Without more information, markets will "have less information and potentially more inaccurate beliefs on which to base their thinking."

How it works: Hatzius sees two risks. Markets could underreact to a piece of data that matters to the Federal Reserve. That would delay the effect of monetary policy on the economy.

• Or markets could overreact to information that the Fed doesn't actually think is important — pushing interest rates sharply in one direction before reversing when policymakers fail to deliver the expected move.

Yes, but: The Wall Street Journal's editorial board argues that Wall Street should "quit whining about the Federal Reserve."

• The rise in bond rates that critics are pointing to could be due to other factors, they argue — like anticipated economic growth.
• Wall Street should do its job, the WSJ board wrote, and not look to "Daddy Fed."

Where it stands: Analysts now worry that the reaction function is harder to read — and Warsh's press conference last week intensified those concerns.

• The Fed held rates steady, as expected. But analysts say Warsh did not clearly explain the decision or spell out what economic developments would trigger a hike.
• Long-term bond yields and market-based inflation expectations rose, while stocks and the dollar weakened.

Bank of America economists said the reaction suggested investors were questioning the Fed's commitment to controlling inflation, rather than simply anticipating tighter policy.

• "It just added uncertainty," BofA economists Claudio Irigoyen and Antonio Gabriel wrote in a note late last week.

The bottom line: "If you give markets no information, they're going to do wild things," says David Kelly, chief global strategist at JPMorgan Asset Management.

• He agrees that Warsh's less transparent style has created market confusion and warns that cutting the number of Fed meetings would cause even more.
• "You know, if it ain't broken, don't break it," Kelly says. "There are lots of problems in Washington, D.C. The Fed's communications isn't one of them."