Corporate profits in the United States are shattering Wall Street expectations with a vigor not seen in two decades. As of May 8th, data from Bloomberg Intelligence shows that first-quarter earnings for S&P 500 index constituents surged by 27% year-over-year. This figure more than doubled analysts' prior forecasts of approximately 12%, marking the fastest growth rate since 2004 when periods of recovery from major economic shocks are excluded. Profits for the "Magnificent Seven" tech companies are projected to have leapt by 57% in the first quarter, providing increasing evidence of the profitability of AI investments. While geopolitical tensions were initially seen as the primary threat to U.S. stocks, the robust earnings season has alleviated market concerns, and economic resilience has dispelled fears of a global growth slowdown.
**Largest Beat in Over a Decade**
The first-quarter U.S. earnings season stands as the strongest in 20 years, catching Wall Street off guard with its intensity. According to Bloomberg Intelligence data, the extent to which S&P 500 constituents have surpassed analyst expectations is the largest since 2013, excluding the COVID-19 pandemic period. Charles-Henry Monchau, Chief Investment Officer at Banque Syz, remarked: "I don't recall a time when the gap between sell-side consensus expectations and actual earnings was this wide." He had initially bet on international markets outperforming at the start of the year. However, as tensions with Iran escalated and the AI fervor progressed, he has tactically shifted allocations back to U.S. equities, noting that Europe is "not necessarily the winner of this war." US Bank in Minneapolis had forecasted S&P 500 earnings per share to reach $305 by 2026 at the beginning of the year. According to Robert Haworth, Senior Investment Strategy Director at the bank's wealth management division, the first quarter's exceptional strength has compelled the bank to raise its full-year profit forecast and year-end S&P 500 target. He stated bluntly: "Our expectations were clearly too low."
**"Magnificent Seven" Lead, All Sectors Turn Positive**
Technology giants remain the primary engine of this earnings growth cycle. Data compiled by Bloomberg Intelligence indicates that the "Magnificent Seven"—comprising NVIDIA, Microsoft, Alphabet, Amazon.com, Meta Platforms, Inc., Apple, and Tesla Motors—are projected to have seen their first-quarter profits soar by 57% year-over-year. In the same period, earnings for the remaining 493 S&P 500 constituents are estimated to have risen by about 17%. Thomas Martin, Senior Portfolio Manager at Globalt Investments, holds a relatively optimistic view of the outlook. He said: "I can't recall a period with such sustained earnings growth. I expect full-year 2026 earnings per share to maintain double-digit growth, with AI driving growth for a considerable time." Wendy Soong, Equity Strategist at Bloomberg Intelligence, pointed out: "The market is catching up to the valuation of future earnings power for AI-related companies. While the war in Iran has caused supply chain disruptions, it has also attracted capital flows into U.S. assets under the rationale of risk diversification." More notably, the strength has spread across the entire market. Strategists at Deutsche Bank noted in a recent report that all 11 sectors of the S&P 500 posted positive growth, a first in four years. Even sectors previously weighed down by tariff concerns and weak consumer sentiment, such as consumer cyclicals, telecommunications, and healthcare, have returned to a growth trajectory. Deutsche Bank subsequently raised its 2026 earnings per share forecast by nearly 7% to $342. Max Kettner, Chief Multi-Asset Strategist at HSBC, stated: "For U.S. stocks, particularly large caps, as well as credit markets and risk assets in general, what truly matters is macro activity and earnings fundamentals. Oil price movements and geopolitical tensions might be more critical for interest rate and foreign exchange markets."
**Sustainability Concerns Linger**
Strong earnings have not eliminated all risks, with multiple concerns still looming over the market. Ongoing conflict with Iran continues to unsettle energy prices. The S&P 500 has rallied over 16% from its March low, and technical indicators show the index has been hovering in overbought territory since mid-April, suggesting short-term pullback pressures cannot be ignored. The recent sharp rally in semiconductor stocks has also raised caution. According to Goldman Sachs data, hedge funds' underweight positioning in North American stocks relative to global equity benchmarks has reached a historic extreme. John Cunnison, Chief Investment Officer at Baker Boyer Bank, warned that sustaining the current earnings momentum requires support from consumer spending and confidence. He said: "Consumer confidence is hovering near historic lows. This prosperity needs to reach ordinary consumers, not just the affluent, and translate into broader earnings growth beyond the tech sector. Otherwise, U.S. stocks will face pressure maintaining record highs in the coming months."
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