Global Market Strategist
Equity markets have been perking up as of late, but it could be that sentiment is finally catching up to fundamentals. Despite the shadow of geopolitical uncertainty, 2026 S&P 500 earnings growth has been revised up from 14.9% on December 31 to 17.6% today, with profits gaining steam as the year progresses. While war impacts could shave mid-single digits off EPS growth, that still means potentially double-digit profit growth.
As first quarter earnings season gets underway, we highlight some of the key dynamics within the S&P 500:
- Profits are expected to grow 12.6% in Q1, marking the 6th consecutive quarter of double-digit earnings growth. It’s not just the analysts who are optimistic; companies are issuing positive guidance above both 5- and 10-year averages.
Three sectors – info. tech, materials, and financials – are projected to grow profits double-digits, with utilities just under that threshold. The remaining sectors may have more muted growth, and profits in energy, communication services, and health care may contract.
- Tech earnings could grow 45% y/y, over 10% higher than expected at the beginning of the quarter. The standout performer is semis, set to deliver a whopping 95% y/y growth rate, or 55% of the sector’s total earnings growth. Hardware and components industries also boast impressive growth rates, while software and services are still positive but modest by comparison. The Mag 7 are estimated to grow earnings 23% y/y in Q1 and accelerate further over the next two quarters.
- Energy earnings may be flat in Q1, but surge for the rest of the year. It’s been a wild ride for oil prices and energy estimates, which began the year flat, fell nearly 10% pre-war and are now essentially flat once more. However, one company is driving estimates lower due to timing mismatches on hedging and cargo deliveries impacted by the war, which otherwise would have allowed the sector to grow double-digits. Don’t shed a tear for energy though; according to Factset, profit growth is estimated to be 71% in Q2, and about 40% in each of the next three quarters, following a similar pattern to 2022.
- Financials should show broad-based strength, but this could be the strongest quarter of the year. Financials have been plagued by negative sentiment this year, but four out of the five sub-industries should post double-digit profit growth. Although insurance and consumer finance lead the pack, strength is overstated by a handful of single names. Still, capital markets and financial services should enjoy less idiosyncratic success. However, earnings growth is expected to decelerate in Q2 and Q3 before inflecting higher to finish the year.
- Growth rates are impressive across market cap – Small, mid and large expectations for Q1 are only about 1% lower than initial expectations, with growth rates for small and mid-cap at 17.3% and 16.7% y/y, respectively.
Sentiment could veer off course once again as geopolitics keeps markets on their toes, but investors should anchor investment decisions in the solid fundamentals earnings are providing.