- Morgan Stanley strategists led by Michael Wilson say strong corporate earnings — especially from hyperscalers and chipmakers — are overshadowing fears that the Iran war will weigh on equities.
- S&P 500 earnings revisions have moved higher across multiple time horizons: Q2 estimates are up 2%, while full-year 2026 and next-12-month forecasts have risen 3% and 4%, respectively.
- The median S&P 500 company posted a 6% EPS upside surprise in Q1 — the strongest beat rate in four years — with broad-based upward revisions across financials, industrials, and consumer cyclicals.
- Goldman Sachs strategists led by Ben Snider note that AI infrastructure spending estimates are still accelerating, lifting earnings outlooks for the broad market and skewing S&P 500 EPS risks to the upside.
What Happened?
Morgan Stanley’s equity strategy team argues that the market’s fundamental earnings story is overwhelmingly positive, pushing geopolitical anxiety over the Iran war to the background. First-quarter results have been notably strong: the median S&P 500 company beat EPS estimates by 6% — the best outperformance in four years. Hyperscalers and semiconductor companies have been standout contributors, benefiting from accelerating cloud demand and solid order backlogs. Upward revisions have also spread beyond tech into financials, industrials, and consumer cyclicals, signaling a durable broadening of profit growth. The Iran war’s impact is seen as uneven rather than systemic, with energy companies actually serving as a tailwind as elevated oil prices boost their earnings.
Why It Matters?
The bull case for equities has long rested on earnings resilience, and this reporting season is validating it. If profit revisions continue to move higher even as geopolitical risk persists, it reduces the likelihood of a significant market correction driven by the conflict alone. Goldman Sachs adds another layer: AI infrastructure capex estimates are still being revised upward by Wall Street analysts mid-season, which feeds directly into earnings estimates for the companies building that infrastructure. The one persistent risk is concentration — seven stocks have generated roughly 80% of S&P 500 returns year-to-date, meaning the market’s health is heavily dependent on a very small cohort.
What’s Next?
The key near-term variables are whether earnings breadth continues to expand beyond tech mega-caps and whether the Iran war escalates in a way that disrupts supply chains or spikes energy costs beyond what the market has already priced. Watch second-quarter guidance carefully — if management teams begin flagging logistics or oil-cost headwinds, the Morgan Stanley thesis of “uneven but not systemic” impact will face a real test. AI infrastructure capex commitments from the hyperscalers remain the single most important data point for sustaining the current earnings upgrade cycle.
Source: Bloomberg
