Corporate earnings in the United States are surpassing Wall Street forecasts with a vigor not seen in two decades. According to Bloomberg Intelligence data from May 8, first-quarter earnings for S&P 500 constituents surged by 27% year-over-year, more than double analysts' earlier projections of approximately 12%. This marks the fastest growth rate since 2004, excluding periods of recovery from major economic shocks. The "Magnificent Seven" technology companies are expected to see their first-quarter profits leap by 57%, increasingly demonstrating the profitability of AI investments. While geopolitical tensions were initially seen as the biggest threat to U.S. stocks, the robust earnings season has alleviated market concerns, and economic resilience has dispelled fears of a global growth slowdown.
The magnitude of earnings exceeding expectations is the largest in over a decade. The first-quarter earnings season in the U.S. is the strongest in 20 years, catching Wall Street off guard. According to Bloomberg Intelligence, the extent to which S&P 500 constituents surpassed analyst expectations is the greatest since 2013, excluding the COVID-19 pandemic period. Charles-Henry Monchau, Chief Investment Officer at Banque Syz, stated: "I don't recall a time when the gap between sell-side consensus expectations and actual earnings has been so wide." Earlier this year, he had bet on outperformance in overseas markets, but as tensions with Iran escalated and the AI boom progressed, he tactically shifted his positions back to U.S. stocks, noting that Europe "may not be the winner in this war."
US Bank in Minneapolis had initially forecasted S&P 500 earnings per share to reach $305 by 2026. According to Robert Haworth, Senior Investment Strategist at the bank's wealth management division, the strength of the first-quarter performance forced the bank to raise its full-year earnings forecast and year-end S&P 500 target. He candidly admitted: "Our expectations were clearly too low."
The "Magnificent Seven" lead the way, with all sectors turning positive. Technology giants remain the primary engine of this earnings growth cycle. According to data compiled by Bloomberg Intelligence, the "Magnificent Seven"—comprising NVIDIA, Microsoft, Alphabet, Amazon.com, Meta Platforms Inc., Apple, and Tesla Motors—are projected to see a 57% year-over-year surge in first-quarter profits. During the same period, earnings for the remaining 493 S&P 500 constituents are expected to rise by about 17%.
Thomas Martin, Senior Portfolio Manager at Globalt Investments, is relatively optimistic about the outlook. He said: "I can't recall a period with such sustained earnings growth," anticipating double-digit earnings per share growth throughout 2026, driven by AI for a considerable time. Wendy Soong, Equity Strategist at Bloomberg Intelligence, noted: "The market is catching up to valuations of future earnings power for AI-related companies. While the war in Iran caused supply chain disruptions, it also attracted capital flows into U.S. assets under the rationale of risk diversification."
More notably, the strength has spread across the entire market. According to a recent report by Deutsche Bank strategists, all 11 sectors of the S&P 500 posted positive growth for the first time in four years. Even sectors previously weighed down by tariff concerns and weak consumer sentiment, such as consumer cyclicals, telecommunications, and healthcare, have returned to growth. Deutsche Bank subsequently raised its 2026 earnings per share forecast by nearly 7% to $342.
Max Kettner, Chief Multi-Asset Strategist at HSBC, stated: "For U.S. stocks, especially large-cap stocks, as well as credit markets and risk assets overall, what truly matters are macroeconomic activity and earnings fundamentals. Oil price movements and geopolitical tensions might be more critical for interest rate and foreign exchange markets."
Can the growth be sustained? Concerns remain. Strong earnings have not eliminated all risks, and multiple concerns still loom over the market. Continued conflict in Iran is disturbing energy prices. The S&P 500 index has rebounded more than 16% from its March lows, but technical indicators show it has been hovering in overbought territory since mid-April, suggesting near-term correction pressure cannot be ignored. The recent sharp rally in semiconductor stocks has also raised alarms. According to Goldman Sachs data, hedge funds' underweight positioning in North American stocks relative to global equity benchmarks has reached a record high.
John Cunnison, Chief Investment Officer at Baker Boyer Bank, warned that maintaining the current earnings growth momentum requires support from consumer spending and confidence. He said: "Consumer confidence is lingering near historic lows. This prosperity needs to benefit ordinary consumers, not just the wealthy, and translate into broader earnings growth beyond the technology sector. Otherwise, U.S. stocks will face pressure in maintaining record highs in the coming months."
Comments