📈 Earnings Special Edition 📉

After reeling from a shock delivered by the White House, US stocks are rebounding vigorously heading into Q1 earnings season… which sounds strikingly similar to what was transpiring about a year ago, Sherwood News Markets Editor Luke Kawa noted. 

In 2025, President Trump slashed reciprocal tariffs on April 9, two days before JPMorgan’s results unofficially kicked off earnings season. This year, Trump announced a two-week ceasefire late on April 7, sending the markets back up on optimism of a resolution. If stocks repeat the patterns of a year ago, it could see the recent unprecedented divergence between stock prices (falling) and earnings estimates (rising) reconciled by corporate results that inspire the former to catch up with the latter.

But while things feel similar on the surface, a big distinction between April 2025 and 2026 lies in what’s expected from Corporate America — and how little that’s mattered to traders lately.

• Last year, S&P 500 12-month forward earnings estimates had started to roll over as analysts began to incorporate their views on how tariffs would weigh on profitability.

• By contrast, FactSet Senior Earnings Analyst John Butters found that the share of S&P 500 companies issuing positive earnings-per-share guidance this quarter is the highest since Q3 2021, when the economic reopening from the pandemic was kicking into an even higher gear.

• Zooming out to 12-month forward earnings revisions, there are two standout sectors that have seen profit estimates soar since the end of 2025: energy and tech.

• The Mideast war is behind the positive outlook for energy companies’ bottom lines. The relative performance of the Energy Select Sector SPDR Fund versus the SPDR S&P 500 ETF typically tracks whatever crude oil futures have been doing. In a nutshell, oil determines whether energy stocks are winners or losers, as this chart shows.

The Takeaway

As for tech, Kawa wrote that traders’ “that don’t impress me much” attitude toward tech profits predates US strikes against Iran. Despite tech companies handily besting profit expectations last reporting period, their stocks tended to fall thereafter. 

The medium-term outlook for return on AI investments, which will both govern the longevity of the boom for chip companies and also inform how quickly most hyperscalers can get back to generating ever-growing billions in free cash flow, has resulted in a much more cautious stance and pick-your-spots approach for the theme in 2026 versus 2025, but as Goldman Sachs spotlights how tech valuations have gotten more attractive, this may be the quarter that changes.

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Speaking of Big Tech, Sherwood News’ Senior Markets Correspondent, Matt Phillips, shared a different lens on the upcoming earnings season. He posited that whether the coming crop of earnings results is considered a bonanza or a bust will have less to do with the war in Iran and more to do with updates on the ongoing AI boom, and what it means for the tech stocks that remain the overwhelming source of growth for the market.

The top 10 stocks — all tech, except for Exxon and JPMorgan, as you can see in his table — account for about 35% of the profits generated by the entire S&P 500, per FactSet. And for the most part, they won’t report results until late April, and in some cases, May.

As noted by Goldman Sachs and Kawa, tech goliaths aren’t looking particularly expensive at the moment.

• Nvidia, for example, is essentially trading at 20x expected earnings over the next 12 months, near its lowest levels in the last decade. The same could be said for Microsoft.

• Some think low valuations reflect concerns that these former asset-light, cash-generating giants are unlikely to make a profit on the hundreds of billions of dollars — an expected $600 billion in capital expenditure this year alone — they’re pouring into AI.

• Goldman Sachs analysts estimate that AI investment spending will account for roughly 40% of S&P 500 EPS growth in 2026.

• All of the biggest S&P 500 gainers so far this year are companies that, basically, have been selling their stuff to be used in the big AI build-out. Data center stocks, to put it simply, have ripped in 2026.

• On the other hand, software companies — which were first battered by AI worries, then snapped up as a source of reliable cash flows amid the war, and since the ceasefire, dumped yet again — could convince Wall Street they’re not doomed to obsolescence in an AI future.

The Takeaway

War or peace, investors will get a welcome dose of clarity as the quarterly flurry of earnings reports starts rolling in. Traders will be watching for any indication that the breakneck pace of growth for Big Tech companies and the AI build-out is slowing down — big spending by hyperscalers matters massively to the rest of the market. 

This week as financial firms report, investors will be keen to see if JPMorgan has been able to rake in a bigger share of the fees Wall Street has collected from blockbuster bond deals financing the AI building boom as a first data point of what’s ahead.

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Netflix has spent billions on gaming, but whether those efforts can make its existing user base “more sticky” remains on our watch list ahead of its earnings report Thursday. Its latest launch targeting an audience of kids 8 and under, Playground, is far different from its earlier approach of pumping out as many games as possible, and is now focused on simpler games and a “watch along” strategy.

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