The recovery in the U.S. stock market since the beginning of April could soon face its first critical test, as the first-quarter corporate earnings season is about to get underway.
Many on Wall Street have credited analysts’ sunny earnings estimates for helping to keep a floor under the S&P 500, even as global markets have been rattled by fighting in the Middle East.
The chart below, highlighted in a Friday note from FactSet senior earnings analyst John Butters, shows that expectations for the S&P 500’s earnings per share (EPS) have continued to climb, even as the S&P 500 recently dropped on worries over the Middle East.
Results for the first quarter — with major banks reporting this upcoming week — will be “an important earnings season, for sure,” said Liz Ann Sonders, chief investment strategist at Charles Schwab, in a phone interview.
“What’s been surprising is that estimates for the full calendar year of 2026 have actually been rising in the last two months,” she said — even as the U.S. stock market fell in March amid fears that rising oil prices, driven by the Iran conflict, could hurt the U.S. economy or pressure the Federal Reserve to hold off on future interest-rate cuts.
That raises the stakes for the first-quarter earnings season to go well just as the S&P 500 approaches positive territory for 2026. Investors, still questioning whether a truce between the U.S. and Iran will last after their two-week cease-fire agreement, will be looking for company earnings to provide a solid fundamental underpinning for a jittery stock market.
“Hostilities over the last month have removed some pillars of support” for the market, said Jim Lebenthal, chief market strategist at Cerity Partners, in an interview — with the Iran conflict leading to a jump in U.S. inflation that casts doubt on whether the Federal Reserve will cut rates this year. “The idea that the Fed is going to cut interest rates this year seems quite dubious,” he said.
U.S. inflation, as measured by the consumer-price index, jumped 0.9% in March amid higher gasoline prices, for a year-over-year rate of 3.3%, according to a report Friday from the Bureau of Labor Statistics. That’s well above the Fed’s 2% inflation target, with higher prices at the gas pump leaving Americans with less cash to spend elsewhere in the U.S. economy.
Energy is one of three sectors in the S&P 500 that recently saw “meaningful” increases to earnings estimates for full-year 2026, along with materials and technology, according to Sonders. But overall, analysts expect the S&P 500 will see 19% earnings growth for full-year 2026, up from a consensus forecast in January of around 15.5%, she noted.
“If earnings perform well, and you have a decent surprise factor, and you don’t get really dour forward-looking assessments from companies, that will continue to be the easiest thing to point to as a support for the market,” Sonders said. That’s “notwithstanding the war-related stuff that we can’t gauge” due to uncertain and shifting developments in the Middle East, she added.
A few bright spots
While the start of first-quarter earnings season will ramp up in the coming week, with reports from big banks including Goldman Sachs, JPMorgan Chase, Wells Fargo, Citigroup and Morgan Stanley, there are some bright spots in the results that have already begun to trickle in.
Shares of Delta Air Lines saw a sharp rally on April 8 after the company beat expectations and provided an upbeat outlook despite higher oil prices. Jeans maker Levi Strauss’s stock surged that same day after it delivered quarterly results that topped expectations and also raised its profit outlook.
The market is looking for about 13% earnings growth in the first quarter for the S&P 500, said Larry Adam, chief investment officer at Raymond James, by phone. That would mark a sixth straight quarter of double-digit earnings growth, which is “pretty incredible,” he said.
Meanwhile, many companies have already provided “upward guidance” for the first quarter, raising the bar for their stocks to rally when the results are actually released, according to Adam. “There’s already been a lot of optimism built in” to the market because of investors’ expectations on such guidance, he said.
Corporate outlooks beyond the first quarter will be important to investors looking for clues about how the Iran conflict may impact consumer behavior, as sentiment has soured. A survey from the University of Michigan showed consumer sentiment dropped to a record low in April.
The U.S. stock market closed mostly lower Friday, but the S&P 500, Dow Jones Industrial Average and Nasdaq Composite still booked strong gains for the week. Along with earnings, stocks have been supported in part by a still-expanding economy, said Lebenthal, even if the major benchmarks stumbled in March on worries over Iran.
This month, the S&P 500 has rebounded 4.4% through Friday, although the index remains modestly in the red for the year to date. The S&P 500 ended Friday with a year-to-date decline of 0.4%, after posting its biggest weekly gain since November, according to Dow Jones Market Data.
Uncertainty surrounding Iran still hangs over the market.
“The lack of visibility on the duration and magnitude of the energy disruption” in the Middle East, and how that’s going to affect consumer spending, will probably result in conservative guidance from corporate management when delivering first-quarter results, said Jeff Schulze, head of economic and market strategy at ClearBridge Investments, by phone.
But “we are buyers of the dip” in the stock market, noted Schulze. “We think that there’s more room to run to the upside from here,” he said — but cautioned that anticipated gains in 2026 will depend in part on oil prices.