Morgan Stanley's Wilson: Undeterred by the Iran conflict, S&P 500 earnings will grow 20% in the next year.

Despite ongoing turmoil in the Middle East affecting the markets, some Wall Street strategists are turning their focus to the resilience of U.S. corporate earnings, viewing it as a key support for the stock market.

Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist at Morgan Stanley, stated in a client report on March 23 that the earnings of S&P 500 constituents are expected to grow by 20% in the next 12 months, a level historically seen only when the economy emerges from a recession.

He pointed out that the probability of surging oil prices ending the current business cycle remains low. Meanwhile, Barclays strategists also raised their S&P 500 year-end target price and earnings forecasts this Tuesday, citing strong U.S. economic performance and outstanding results from leading tech stocks. This optimism in part explains the resilience shown by the S&P 500 in the context of escalating tensions in the Middle East.

Earnings Forecasts Raised Against the Trend

Analysts continue to raise earnings forecasts even as tensions persist in the Middle East.

Bloomberg Intelligence data shows analysts expect S&P 500 constituents’ earnings to grow by 11.9% year-over-year in the first quarter, up from 10.9% expected before the Iran conflict erupted. Data compiled by strategist Wendy Soong also shows that earnings and revenue forecasts for the next three quarters have been raised by 1.9% and 1.5% respectively, partly as the impact of tariff shocks continues to fade.

Morgan Stanley Chief Investment Officer Mike Wilson pointed out a rare phenomenon: while S&P 500 share prices are falling, corporate earnings forecasts are being raised. Historical data shows that whenever analysts raise earnings forecasts during a market decline, U.S. stocks often record strong performance afterwards. This pattern provides historical support for investors willing to ignore short-term volatility.

Risks Cannot Be Ignored

Optimism does not come without risks.

JPMorgan data shows that if oil prices remain at $110 per barrel for the rest of the year, earnings forecasts for S&P 500 constituents could be lowered by as much as 5 percentage points.

Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, reminds that during times of significant uncertainty, earnings forecasts often lag. He pointed out that when Trump’s large-scale tariff policy led to a market selloff in April this year, analysts similarly delayed lowering forecasts. "It's always the case with any uncertainty shock," he said, "it takes time for shocks to be reflected in earnings forecasts."

The upcoming first-quarter earnings season—marked by large banks reporting first in three weeks—will be the first real test of analysts’ optimistic forecasts.

Geopolitical Situation Remains a Key Variable

In recent weeks, market pressure has been mounting, Middle East conflicts are escalating, and there is no clear sign of easing in the short term. Investors are hoping that Trump will help de-escalate the situation to stem further declines in risk assets.

Brad Conger, Chief Investment Officer at Hirtle Callaghan, believes that the market’s sensitivity to political statements will eventually give way to focus on real economic impacts. "At some point, the market will stop reacting to rhetoric and truly focus on economic shocks," he said. "When companies start saying they must shift or cut production, or raise prices—in other words, when companies begin reflecting real-world impacts—Trump's statements become less relevant."

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