Despite persistent inflation and ongoing geopolitical tensions, American corporations continue to deliver robust profits. The earnings season kicked off with strong results from major banks, fueling expectations that S&P 500 companies will achieve a 12% year-over-year increase in earnings. Tom Essaye, founder of market research firm Sevens Report Research, remarked, "Corporate America is operating at full speed." He noted that S&P 500 earnings per share have risen from around $235 in 2024 to a projected $315 by 2026.
Essee attributed the quarter's strong profit growth—whether in artificial intelligence or other tech sectors—to resilient profit margins. Companies have successfully managed higher energy and transportation costs without letting them erode profitability. Despite inflationary pressures, the overall customer base remains "quite solid." He added, "If anything, upside risks still exist, demonstrating strong corporate execution in an environment filled with fear but backed by solid performance."
However, Scott Chronert, Citigroup's U.S. equity strategist, cautioned in a recent client report that the real "challenge" lies in the details. While the firm anticipates a "normal level of positive surprises" in the first quarter, Chronert warned of emerging divergences across sectors. He emphasized that technology and semiconductor companies must "deliver earnings beats and raise guidance" to sustain index gains. Other sectors are expected to show mixed performance, with consumer segments already experiencing downward revisions to profit forecasts.
Although Citigroup raised its 2026 S&P 500 EPS consensus from $312 to $324, Chronert remains skeptical about the second half of 2026, anticipating "narrative divergence across industries." This skepticism is one reason investors seek further evidence to validate the recent U.S. stock market rally.
Keith Lerner, Truist's chief investment officer, noted that market focus is squarely on earnings momentum. He added that when investors buy tech stocks, "you need growth, you need upside from raised earnings expectations, you need earnings momentum—that’s why you're willing to pay higher valuations."
After a period of relative calm, this earnings season offers large technology companies an opportunity to reclaim their "dominant role" in the bull market—driven by AI and tech spending. An ETF tracking the "Magnificent Seven" stocks has surged 9% over the past five sessions, nearing its all-time high after declining to its lowest level since July 2025 in the six weeks following the outbreak of Middle East conflict.
For hyperscale cloud companies, the market is watching when massive AI capital expenditures will begin translating into profits. In response, Lee Munson, president and chief investment officer of Portfolio Wealth Advisors, advises investors to shift from hype to the economy's "fundamental pillars." He favors Alphabet (GOOG) and Amazon.com (AMZN), describing them as "safe havens" because they provide the infrastructure and data essential for AI operations. "The build-out will continue, and it will be massive and expensive—these companies control the foundational resources of cloud and data," he said.
Munson also urges caution regarding high-valuation stocks like Adobe (ADBE) and Salesforce (CRM), warning, "I worry that you don’t really know how things will turn out, and high valuations can slowly bleed your capital."
For investors seeking overlooked opportunities, Essaye is focusing on financial and healthcare sectors. Bank stocks previously sold off due to private credit risk concerns, but Essaye believes those fears are overblown. With interest rates remaining elevated, he expects net interest margins and overall revenue in the financial industry to improve.
Lerner recently upgraded the energy sector to "buy on dips." As earnings expectations rise, he is monitoring how corporate executives view the "lower bound" of oil prices and what sustained price increases could mean for future profit margins. Munson also sees momentum in energy, stating, "The energy sector as a whole still has room to run. If I were allocating capital, I’d focus more on companies like ExxonMobil."
Corporate earnings resilience serves as a critical foundation. With this support, several Wall Street institutions have recently voiced optimism about U.S. stock prospects, fueling hopes for a new bull market led by technology shares. Tom Lee, a veteran equity strategist and co-founder of Fundstrat, believes U.S. and global equity markets are in a stronger position now than when they last hit record highs earlier this year. He agrees with JPMorgan’s assessment that the technology sector, centered on AI infrastructure, will lead the next phase of the bull market.
Citigroup has upgraded U.S. stocks from "neutral" to "overweight," projecting the S&P 500 will reach 7,700 by year-end. The bank’s latest report indicates that the technology sector, previously weighed down by geopolitical conflicts, valuation concerns, and high expectations, is entering a window of opportunity as risk appetite recovers and fundamentals are reassessed.
Following a marginal easing of Middle East tensions, markets have swiftly shifted from safe-haven assets back to risk assets, with the S&P 500 and Nasdaq both strengthening. This suggests investors are once again trading on the "future earnings growth trajectory driven by AI" rather than "current panic." In this framework, tech stocks—especially large platforms—are no longer merely liquidity-driven favorites but have re-emerged as the core anchor for U.S. market risk appetite and earnings expectations.
Asset management giant BlackRock’s equity strategists have turned "overweight" on U.S. stocks, emphasizing the current earnings season and asserting that profit growth can sustain the bull market. The strategists wrote, "Even during geopolitical conflicts, corporate earnings expectations continue to rise, largely due to strong AI-related investment demand."
In summary, the narrative of a new U.S. bull market rests on three key pillars: the earnings resilience demonstrated in the latest reporting season, a resurgence in risk appetite led by tech and AI themes, and the market’s belief that Middle East disruptions will not lead to prolonged inflation like 2022. As long as these pillars hold, U.S. stocks are poised to advance further amid easing geopolitical tensions.
Nevertheless, some institutions warn that markets may be underestimating risks. While many investors expect the conflict to gradually de-escalate or are selectively ignoring war-related noise, supply chains, energy infrastructure, and inflation expectations have already suffered tangible impacts that will be difficult to fully repair in the short term. Certain investment firms note that the market is treating the situation as resolved, yet underlying vulnerabilities remain.
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