Key Takeaways:
(P1) United States corporate earnings are surging in the first quarter of 2026, with S&P 500 profits on track to grow more than 13% year-over-year, as the rally in profitability broadens beyond technology giants to include old-economy sectors like energy and industrials.
(P2) "Earnings growth has been exceptional,” Parag Thatte, an equity strategist for Deutsche Bank, said. “We’re seeing the broadening of earnings growth beyond just tech and financial” firms.
(P3) With over a quarter of S&P 500 firms reporting, overall sales are expected to rise more than in any quarter since the fall of 2022. The energy sector was the standout performer, rising 38.2% as crude oil prices pushed above $100 per barrel, according to a ClearBridge Investments report. In contrast, the information technology and communication services sectors, which led the market from 2023 to 2025, fell 9.1% and 6.9%, respectively.
(P4) The robust results create a difficult backdrop for the Federal Reserve, as persistent inflation and a complex labor market constrain the central bank's ability to ease financial conditions. The market is now contending with a mix of slowing labor demand, moderating wages, and signs of inflation pressure, making the prospect of a Fed put to support stocks less certain.
The first quarter marked a significant shift in market leadership, reversing the AI-driven momentum that dominated the prior three years. Long-lagging sectors including materials, industrials, utilities, real estate, and consumer staples all outperformed the S&P 500.
Industrials' outperformance was driven by defense companies and firms tied to AI and energy infrastructure. For example, oil-services company Halliburton eclipsed Wall Street expectations as CEO Jeff Miller told investors that "energy security is no longer simply a talking point." However, not all energy firms posted stellar results; Italy's Eni S.p.A. missed analyst forecasts, with an EPS of 0.0462 EUR versus an expected 1.22 EUR, though it raised its full-year Brent crude forecast to $83 per barrel.
Despite high inflation and dour sentiment, consumer spending appears robust, though polarized. American Express reported cardholder spending was up 9% in the first quarter, with luxury retail spending rising 18%. United Airlines posted an 80% rise in first-quarter profit, with business travel up 25% in recent weeks.
However, the picture is mixed. Consumer-products company Procter & Gamble reported sales growth of 3%, below its normal rate of 4%. Andre Schulten, P&G’s chief financial officer, noted the consumer is "still a little bit muted." This reflects a K-shaped economy where the wealthy continue to spend while others feel strapped, according to Gregory Daco, chief economist at EY-Parthenon. The pressure on some consumers was evident as Charter Communications stock plunged 25% after reporting a loss of 120,000 internet subscribers.
The strong corporate results, particularly the broadening of the earnings base, suggest a healthier and more resilient economy than feared. Investors will now watch for the Federal Reserve's response and whether the strong demand that is fueling profits will keep inflation stubbornly high. The next major catalyst will be the release of the April Consumer Price Index data.
This article is for informational purposes only and does not constitute investment advice.
