Wall Street is optimistic about U.S. stock earnings prospects, while Goldman Sachs warns of excessive concentration in rising stocks.

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The S&P 500 Index hit a record high, but structural divergence behind earnings revisions has attracted attention.

Wall Street strategists at major banks are generally optimistic about the outlook for U.S. corporate earnings. The first quarter earnings season started well, combined with a revived enthusiasm for AI investment, boosting market confidence.

Morgan Stanley strategist Michael Wilson stated, "Despite geopolitical risks, the momentum of earnings recovery remains intact, and positive operating leverage is the core driving force."

However, Goldman Sachs pointed out, This round of earnings upgrades and stock market gains are highly concentrated in a few stocks, with market breadth dropping to its lowest level in decades.

Currently, bank stocks have delivered impressive results first. JPMorgan, Bank of America, Citigroup, and Goldman Sachs have all posted record equity trading revenue. According to Bloomberg data, about 81% of large-cap stocks have reported EPS exceeding analyst expectations.

Earnings Season Starts Strong, Clear Logic for Earnings Recovery

Morgan Stanley's Wilson pointed out that S&P 500 EPS growth is showing continued improvement, with revenue growth outpacing cost growth, and positive operating leverage providing effective support for corporate profits.

JPMorgan strategist Mislav Matejka said that earnings forecasts across major regions have all been raised. "Although renewed geopolitical tension and persistently high oil prices may pressure earnings, Brent crude remaining at $100 is still consistent with upward earnings potential."

By sector, JPMorgan is optimistic about semiconductors, mining, and industrial sectors, while the consumer discretionary sector may face challenges.

The Rally Is Highly Concentrated, Earnings Upgrades Dominated by a Few Stocks

Goldman Sachs’ Ben Snider noted that although consensus expectations for S&P 500 EPS this year and next have been raised by about 4% compared to January, almost all the increase comes from the energy and information technology sectors.

More notably, just two companies, Micron Technology and ExxonMobil, have together contributed over 60% of the upward revision to S&P 500 2026 EPS consensus expectations since the conflict broke out.

"Most of the recent upward revisions to S&P 500 earnings expectations are driven by only a handful of stocks," Snider said.

Meanwhile, Goldman's preferred market breadth gauge has fallen to near decade lows, only above levels seen during the internet bubble and mid-2023, indicating that both the rally and earnings revisions lack broad market support.

Key Test: Can Earnings Revisions Spread to a Wider Range?

The core question facing the market now is whether, as the first quarter earnings season peaks, earnings upgrades and stock price rallies can expand from a few stocks to a broader range of constituents.

The reopening progress of the Strait of Hormuz is critical for cyclical sectors, which are more closely linked to economic conditions.

Goldman believes the market is slightly tilted to the upside. Downside risks come from weakening consumer demand and war-driven cost increases, while upside factors include continued AI investment and productivity improvements.

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