Wall Street braces for Q1 earnings with 12.6% growth expected

U.S. first-quarter corporate earnings season begins this week, testing the market’s recent optimism after a ceasefire between the U.S. and Iran eased geopolitical tensions and sent stocks higher. Analysts expect S&P 500 companies to report a 12.6% increase in earnings from a year earlier, which would mark the sixth consecutive quarter of double-digit growth.

“The reason the market still is so robust is because earnings estimates just keep moving higher. There's yet to be any sort of negative impact on fundamentals from ​the war,” said Nick Giorgi, chief equity strategist at Alpine Macro. “If you start to see actually a bit of a negative cascade from fundamentals, then all bets are ​off.”

The S&P 500 has recovered most of its losses since the conflict began, now down less than 1% since late February. Below is the consensus forecast for Q1 earnings growth.

The focus for investors will be on company guidance to see if the surge in oil prices, with U.S. crude up roughly 70% this year, will impact future profits. Major banks including Goldman Sachs (GS.N), JPMorgan (JPM.N), and Citigroup (C.N) are set to report this week, offering a key look into the health of the U.S. economy.

The recent two-week ceasefire agreement has been a significant driver of market sentiment, with the S&P 500 now just 2.3% below its all-time high. However, the situation remains fragile, and markets are expected to remain sensitive to developments in the Middle East.

Investors will be closely watching commentary from bank executives on consumer spending patterns and lending activity. “What they're seeing for spending patterns is going to be pretty critical to get a sense on just how material is that kind of slowdown risk from a consumption perspective,” said Garrett Melson, portfolio strategist with Natixis Investment Managers Solutions.

Beyond the banks, other major companies reporting include Netflix (NFLX.O), Johnson & Johnson (JNJ.N), and PepsiCo (PEP.O). The technology sector is projected to be the main driver of earnings growth, while the healthcare sector is expected to see a decline.

The guidance raise signals management expects AI demand to accelerate. Investors will watch the Q1 earnings call on for updated segment margins.

This article is for informational purposes only and does not constitute investment advice.