The S&P 500 just posted its fastest sales growth in nearly five years. Don't pop the champagne yet. The entire surge is riding on one sector: energy. Oil and gas companies saw revenue jump a staggering 42.5% in the second quarter. Strip them out, and the picture gets a lot less rosy.
This isn't broad-based prosperity. It's a fossil-fueled mirage. While energy companies are raking in cash, the rest of the market is trudging along with single-digit growth. That's not the kind of momentum that sustains a bull market. It's a sugar rush.
Let's be clear: this is a story about energy, not the economy. The surge in oil prices — driven by OPEC+ production cuts and geopolitical chaos — has fattened the bottom lines of Exxon, Chevron, and their ilk. Good for them. But what about the rest? Tech, consumer discretionary, industrials — they're all growing, sure, but at a pace that would have been ho-hum in any other quarter.
A Tale of Two Markets
Dig into the numbers and you'll find a split personality. Energy revenue growth of 42.5% is eye-popping. But the median S&P 500 company? It's likely grew sales by a mid-single-digit percentage. That's the kind of growth you get when inflation is running hot and consumers are tapped out, not when the economy is firing on all cylinders.
Investors are being sold a bill of goods. The headline number — the strongest top-line growth since late 2021 — masks a fragile underlying reality. Ex-energy, the index's sales growth probably clocks in at around 5% or 6%. That's not nothing, but it's not the kind of acceleration that justifies record-high valuations.
“Energy is a cyclical beast. When oil prices roar, so do revenues. But that's not durable growth — it's a commodity bump.”
We've seen this movie before. In 2021, when the post-pandemic rebound sent oil prices soaring, energy stocks led the charge. Then oil collapsed in 2022, and so did earnings. The current situation has similar fingerprints. OPEC+ is holding back supply, keeping prices artificially high. That's great for a quarter or two, but it's not a sustainable growth engine for the broader economy.
What the Numbers Really Tell Us
Let's get specific. The second-quarter earnings season, which wrapped up last week, showed that 78% of S&P 500 companies beat earnings estimates. But revenue surprises? Only 62% managed to top forecasts. That's a significant drop-off. It suggests companies are hitting profit targets through cost-cutting and buybacks, not through genuine demand.
Take a look at the sectors. Consumer staples, traditionally a stalwart, saw sales growth of just 2.1%. Healthcare? 3.4%. Utilities? 1.8%. These are the sectors that keep the economy humming, and they're barely sputtering. Meanwhile, energy is booming, and that's skewing the index's overall numbers.
The S&P 500 is a market-cap-weighted index, so the big energy players have an outsized impact. ExxonMobil alone has a market cap north of $400 billion. When it posts a 50% revenue jump, it moves the needle. But the average investor doesn't own just Exxon. They own a diversified portfolio, and that portfolio is growing at a meager pace.
The Inflation Trap
Here's the uncomfortable truth: this sales surge is partly a function of inflation. Energy prices are up 35% year over year. When you sell less oil but charge more for it, your revenue goes up. That's not growth — that's price gouging, or at least price pass-through. And it's hitting consumers in the wallet, which will eventually drag down spending everywhere else.
So what's an investor to do? Don't chase the headline. If you're buying index funds, you're getting a heavy dose of energy stocks right now, and you're paying a premium for them. Energy stocks have rallied hard, with the sector up 18% this year. But the moment oil prices dip — and they will, because OPEC+ can't control the market forever — those stocks will give back gains, and the index will look a lot less impressive.
“Ex-energy, the S&P 500 is growing sales at a mid-single-digit rate. That's not a bull market. That's a shuffle.”
The Bottom Line
This is not the time to get complacent. The next few quarters will be telling. If energy revenue growth fades — and it will — the index's top line will lose its mojo. We'll see if the rest of the market can pick up the slack. I have my doubts. Consumer spending is slowing, the housing market is in a slump, and business investment is tepid. That's not a recipe for accelerated sales growth.
The S&P 500's performance this quarter is a reminder that averages can be misleading. A few big winners can mask a lot of mediocrity. Before you celebrate the strongest sales growth in five years, take a look at what's actually driving it. It's not a broad-based boom. It's a one-trick pony, and that pony is running on fossil fuels.
So here's my advice: watch the energy sector like a hawk. If oil prices correct, expect the S&P 500's sales growth to come back to earth with a thud. And don't let the headline numbers fool you into thinking the economy is stronger than it is. It's not. It's just having a good hair day.
