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Corporate America is expected to deliver “exceptionally strong” first-quarter earnings, as a weak dollar and the Trump administration’s tax and spending plans help companies shrug off the fallout from war in the Middle East.
Despite a surge in the oil price since the start of the conflict, analysts’ forecasts for S&P 500 corporate earnings have risen over that period. As reporting season kicks off this week, the index is expected to deliver 12.6 per cent year-on-year earnings growth in the first three months of 2026, according to FactSet data.
On the eve of the war at the end of February, that estimate was for 11.4 per cent earnings growth. FactSet’s estimates show that earnings growth could turn out to be as much as 19 per cent, which would mark the strongest quarter since the end of 2021.
Such strong earnings growth could help extend last week’s powerful market rally, which followed news of a two-week ceasefire between the US and Iran and helped the S&P 500 recover almost to prewar levels, say investors.
“We’re in a regime where you have a lot of macro noise, but the undercurrent for earnings growth is very strong,” said Dan Hanbury, an equities portfolio manager at investment firm Ninety One.
“Just because you have high oil prices, provided you have government spending in the background and we don’t have a recession, there’s no reason why earnings growth shouldn’t stay strong,” Hanbury added.
US President Donald Trump’s so-called One Big Beautiful Bill Act is expected to boost growth and support US returns this year. The law offers tax incentives for businesses investing in machinery and factory equipment and tax cuts for many American workers.
Dollar weakness is providing another tailwind, say analysts. Although the greenback has made back some ground against other major currencies since the start of the war, it remains sharply lower compared with the start of last year. This is helping sectors including energy, materials and technology, which book a large proportion of their revenues overseas in foreign currencies.
First-quarter earnings are likely to be “exceptionally strong”, said Deutsche Bank analyst Parag Thatte.
The strong earnings forecasts at the index level mask sharp differences between sectors, with upgrades for technology and energy companies outweighing downgrades in energy-intensive sectors such as industrials, as higher oil prices start to feed through into corporate results.
The revenue boost to energy companies from surging oil and gas prices is not expected to translate into significant earnings growth this quarter, as prior to the conflict the sector was on track for a sharp drop in earnings. In addition, ExxonMobil — which makes up around 30 per cent of the S&P energy sub-index — is expected to weigh on the sector, with production disruptions as well as hedging effects forecast to drag its earnings lower.
Much will once again hinge on the earnings of Silicon Valley’s tech giants, which have been the main driver behind Wall Street’s strong gains over the past decade or so, say investors, and the sector is expected to contribute the vast majority of the S&P 500’s earnings growth in the first quarter.
Two companies — chipmakers Nvidia and Micron, which last month reported a nearly 200 per cent year-on-year jump in quarterly revenue — are together tipped to contribute 6 percentage points to the market’s overall earnings growth, according to Deutsche Bank.
Even so, tech stocks have lagged behind the wider market as the sector has fallen out of favour this year, prompting one of the worst periods of underperformance since the 1970s. The so-called Magnificent Seven stocks are down more than 6 per cent this year.
The combination of high earnings expectations and wilting share prices means tech valuations have fallen to multiyear lows, with stocks now trading on lower price-to-earnings ratios than sectors including industrials and consumer staples, Goldman data shows.
Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said the recent underperformance of tech stocks meant the sector “has really de-rated very dramatically”, leaving some stocks “looking good and cheap again”.
Helen Jewell, international chief investment officer for fundamental equities at BlackRock, said the market pullback has created a buying opportunity in stocks benefiting from “structural tailwinds” such as AI. BlackRock upgraded US equities to “overweight” this week, citing “strong corporate earnings expectations”.
However, Jewell added that the conflict had created room for negative earnings surprises in parts of the market sensitive to interest rates or consumer spending.
“That more cyclical part of the market, that gets hurt by inflation and higher interest rates . . . that’s probably where the surprises will be” this earnings season, she said.
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