The Big Picture

Briefing.com Summary:

*The first quarter blended earnings growth rate today is 12.5%. That is down from 12.8% on December 31, but not to worry; that will be the sixth straight quarter of double-digit earnings growth.

*The information technology sector continues to do the earnings driving.

*The forward 12-month EPS estimate sits at $333.52 today, according to FactSet, versus $317.70 when the war started.

The stock market has a major geopolitical problem on its hands. It does not have an earnings problem—not yet anyway.

The start of the first-quarter earnings reporting period is right around the corner, and it promises to be another period where the earnings results in aggregate belie any economic problems. They will also once again conveniently mask that the aggregate earnings growth isn't as strong as it appears when you peel back the reporting layers.

Nevertheless, the S&P 500 is an index that trades off aggregate earnings estimates, so it all counts no matter how you slice it.

Time to Break Open a Six-Pack

According to FactSet, the first quarter blended earnings growth rate today is 12.5%. That is down from 12.8% on December 31, but not to worry; that will be the sixth straight quarter of double-digit earnings growth. We're using future tense and not conditional tense because it is common for the aggregate earnings growth rate to be at least two to three percentage points higher than the estimated growth rate when it is all said and done.

This reporting period, like most, will be driven by the information technology sector. Its blended growth rate is 44.4%, which will translate into a 10.2 percentage point contribution to the 12.5% blended growth rate for the S&P 500. So, one sector is effectively 80% of the aggregate growth rate.

The next big contributor is the financials sector, which is expected to account for 2.77 percentage points of growth.

The contribution from other sectors is negligible, and there are three sectors—health care (-1.17 percentage points), communication services (-0.49 percentage points), and energy (-0.17 percentage points)—that are expected to detract from earnings growth.

It is a different story for first quarter sales growth. Every sector is expected to contribute to the blended growth rate of 9.7%, which is up from 8.1% on December 31. The information technology sector is expected to contribute 3.19 percentage points, or approximately 33%, to the overall growth rate.

Rising Estimates

Per usual, the early stage of the reporting period will be led by the financial sector. Heading into 2026, this sector was a popular pick among strategists to be overweight. It is currently the worst-performing sector year-to-date (-7.2%).

It has been upended by festering concerns related to the private credit market, which has been besieged by redemption requests that have run headlong into prescribed withdrawal caps. In other words, some investors have been prevented from getting all the money they have requested.

The rush of requests was precipitated by AI disruption concerns surrounding the software industry. Separately, rising interest rates, a flattening yield curve with short-term yields rising faster than long-term yields, a stock market correction, and growth concerns have been additional headwinds buffeting the sector.

The earnings conference calls for the banks and alternative asset managers, in particular, should be a crowded forum this reporting period, as market participants are eager for more context related to the private credit disruption and expectations for capital markets, which have gotten more volatile since the start of the Iran war.

The war and its residual impact on global economies and markets are going to be a central topic of conversation on most earnings conference calls. It certainly offers a valid excuse to be conservative with guidance, to issue wide guidance ranges, or to withhold guidance altogether.

The market will have to determine if it is fine looking through the fog and trading on a belief that the air will clear soon enough to retain confidence in what remains a stellar forward 12-month earnings outlook.

As we noted in our last column, earnings estimates have continued to rise despite oil prices increasing as much as 75% since the start of the Iran war, the national average for gasoline prices hitting $4.15 per gallon, hiring activity slowing, wage growth moderating, the dollar strengthening, supply chains rusting, and the market pricing out any further rate cuts this year.

The forward 12-month EPS estimate sits at $333.52 today, according to FactSet, versus $317.70 when the war started.

Briefing.com Analyst Insight

We don't know if the Iran war will be over by the time the first-quarter reporting period concludes. We certainly hope it is, but even if it is, its aftershock will continue to register through the second quarter and perhaps beyond.

A lot will depend on when traffic starts moving safely and freely through the Strait of Hormuz.

To this point, the market has moved safely and freely for the most part through the last five reporting periods. It makes sense because earnings have increased double-digits in each of those periods, and the market is driven by earnings and the estimate trend.

That trend has been stellar, but the current geopolitical situation has kicked up a lot of dust that is going to reduce visibility. The market should be able to cope with some temporary blindness, but it is going to need to see the light sooner rather than later that the upbeat earnings estimates are achievable. If it doesn't, it will have another battle on its hands that gets in the way of multiple expansion.

--Patrick J. O'Hare, Briefing.com