Far beyond expectations! In the recently concluded earnings season, U.S. stocks were "surprisingly strong."
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U.S. corporate earnings are surpassing Wall Street expectations with an exceptionally strong momentum not seen in twenty years.
According to Bloomberg Industry Research data on May 8, S&P 500 component companies’ first-quarter earnings rose by 27% year-over-year, more than double analysts’ previous expectations of about 12%, marking the fastest growth since 2004 after excluding major post-shock recovery periods.
The "Magnificent Seven" tech companies are expected to post a 57% profit jump in Q1, further confirming the profit potential of AI investments.
Geopolitical risks were originally considered the biggest threat to U.S. stocks, but the strong earnings season alleviated market worries, and economic resilience eased concerns over a global growth slowdown.
Surprise Margin: Largest in Over a Decade
The U.S. Q1 earnings season has been the best in 20 years, and its robust performance took Wall Street by surprise.
According to Bloomberg Industry Research, the degree to which S&P 500 constituents surpassed analyst expectations was the highest since 2013, excluding the pandemic periods. Charles-Henry Monchau, Chief Investment Officer at Banque Syz, commented:
I don’t recall any time when the gap between consensus sell-side forecasts and actual earnings was this wide.
At the start of the year, he was betting overseas markets would outperform, but with the escalation in Iran and the AI boom, he tactically shifted allocations back to U.S. equities, noting that Europe may "not be the winner in this battle."
US Bank in Minneapolis initially forecast S&P 500 earnings per share to reach $305 by 2026.
Robert Haworth, Senior Investment Strategy Director at the bank’s Wealth Management division, said the strength of Q1 prompted them to raise both their full-year earnings forecasts and year-end S&P 500 target. He commented:
Our estimates were clearly too low.
"Magnificent Seven" Lead, All Sectors Turn Positive
Tech giants remain the primary engine of earnings growth this round.
Bloomberg Industry Research compiled data showing that the "Magnificent Seven"—Nvidia, Microsoft, Alphabet, Amazon, Meta, Apple, and Tesla—are expected to post a combined 57% year-over-year jump in Q1 profits.
Meanwhile, the remaining 493 S&P 500 constituents are expected to grow earnings by around 17%.
(This week, the Tech Seven’s performance far outpaced the other 493 S&P components)
Thomas Martin, Senior Portfolio Manager at Globalt Investments, is relatively optimistic about the outlook. He says:
I can’t recall another period of such sustained earnings growth; we expect double-digit EPS growth through 2026, with AI driving growth for quite some time.
Bloomberg Industry Research equity strategy analyst Wendy Soong noted:
The market is catching up with valuations of AI-related companies' future earnings. Although the Iran war has caused supply chain disruptions, it has also driven inflows to U.S. assets for diversification purposes.
More notably, the strength has spread to the entire market.
Deutsche Bank strategists pointed out in a recent report that all 11 S&P 500 sectors recorded positive growth— the first time in four years—even defensive and consumer sectors such as telecom and healthcare, previously lagging due to tariff concerns and weak consumer sentiment, are back on track for growth.
Deutsche Bank subsequently raised its 2026 EPS forecast by nearly 7% to $342.
Max Kettner, Chief Multi-Asset Strategist at HSBC, said:
For U.S. equities—especially large caps—as well as credit and all risk assets, what really matters are macro activity and earnings fundamentals. Oil prices and geopolitics may be more relevant for rates and FX markets.
Can the Growth Continue? Risks Persist
Strong earnings haven’t eliminated all risks; multiple hazards still hang over the market.
The Iran conflict continues to disturb energy prices. The S&P 500 has rebounded over 16% from the March lows, and technically, the index has lingered in overbought territory since mid-April; short-term pullback risk cannot be ignored.
The recent surge in semiconductor stocks has also prompted caution. According to Goldman Sachs, hedge funds’ underweighting of North American stocks relative to the global benchmark has hit a record high.
John Cunnison, Chief Investment Officer at Baker Boyer Bank, warns that sustaining the current pace of earnings growth requires support from consumer spending and confidence. He says:
Consumer confidence remains near historic lows. This boom needs to benefit ordinary consumers, not just the wealthy, and translate into broader earnings growth beyond tech. Otherwise, it will be difficult for U.S. stocks to sustain record highs in the coming months.
Risk Disclaimer and Liability StatementThe market carries risks, and investment requires caution. This article does not constitute personal investment advice and has not considered the special investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Invest at your own risk. ```