Market Commentary: Q2 GDP Revision and a Jump in Corporate Profits

WASHINGTON — The Bureau of Economic Analysis reported on August 26, 2026, that the U.S. economy grew at a 1.5% annual rate in the second quarter, essentially unchanged from its first estimate, while corporate profits rose by $400.9 billion. For market commentary focused on the link between the economy and earnings, the release offered a striking contrast: modest output growth, rapid price increases and a surge in profits.

The second estimate revised real GDP growth down by less than 0.1 percentage point from the advance estimate. Growth had been 2.1% in the first quarter.

Market commentary on growth: modest and mixed

BEA attributed second-quarter growth to increases in consumer spending, exports and investment, partly offset by lower government spending. On a quarterly, non-annualized basis, real GDP rose 0.4%.

Real gross domestic income, an alternative measure of economic activity based on incomes rather than spending, rose 2.2%, compared with 1.2% in the first quarter. The gap between GDP and GDI growth is worth noting. In principle, the two measure the same economy, and when they diverge, later revisions sometimes bring them closer.

Inflation: revised higher

The price figures were the most consequential part of the release for markets. The PCE price index rose at a 5.3% annual rate, revised up 0.2 percentage point. Core PCE, which excludes food and energy, rose 3.6%, also revised up 0.2 percentage point.

Those readings sit well above the Federal Reserve’s 2% inflation goal. Upward revisions to inflation at the same time as a flat growth estimate describe an economy in which a larger share of nominal growth is coming from prices rather than real output.

Corporate profits: a large increase

Corporate profits increased $400.9 billion in the second quarter, compared with an increase of $74.4 billion in the first quarter. The release summary did not provide the industry breakdown in the figures we reviewed, so the sources of the increase cannot be identified from that summary alone.

The scale of the gain is notable relative to the first quarter. Part of the explanation may lie in the inflation figures: when prices rise quickly, nominal revenue and profits can grow faster than real output. That is an inference from the combination of data in the release rather than a conclusion BEA drew.

What it means for the stock market outlook

For equity markets, the release presented two competing market themes. On one side, the profit figures supported the earnings strength reported by many large companies during second-quarter earnings season. Aggregate corporate profits in the national accounts cover a far broader set of firms than any stock index, and a gain of this size suggests the earnings strength was not confined to a narrow group.

On the other side, inflation of 5.3% on the PCE measure and 3.6% on the core measure pointed toward continued pressure on monetary policy. Higher inflation raises the likelihood of tighter policy, which can affect equity valuations through higher discount rates, even when earnings are rising.

The combination of slow real growth and fast price growth is a difficult backdrop for stocks to price, because strong nominal earnings and higher interest rates pull valuations in opposite directions.

A note on revisions

BEA estimates are revised as more complete data arrive, and BEA itself notes that these figures have since been superseded by later estimates. Readers looking for the current figures should consult the agency’s most recent releases. This report describes the data as published on August 26.

What to watch

The third estimate of second-quarter GDP, along with the industry detail on corporate profits, would clarify where the profit growth came from. Monthly PCE inflation data and the Federal Reserve’s September meeting were the next major events for investors weighing the balance between strong profits and persistent inflation.