Strong Earnings Drive U.S. Stock Market Rally
First-quarter results have come in “exceptionally strong,” providing the main catalyst behind the recent U.S. stock market rally, according to Goldman Sachs. This momentum has continued despite ongoing concerns around high energy prices and geopolitical uncertainty.
S&P 500 Earnings Growth Beats Expectations
With 63% of S&P 500 companies having reported, analyst Ben Snider highlighted that earnings are tracking at 16% growth in earnings per share (EPS), excluding one-off items.
Notably, companies have recorded one of the lowest rates of EPS misses in the past 25 years, outside of the post-COVID reopening period. The overall S&P 500 EPS growth rate stands at 25%, although Goldman Sachs noted that this figure is partially inflated by one-time gains.
Mega-Cap Tech Leads the Rally
Large technology companies have been the key drivers of earnings growth. Amazon, Alphabet, Meta Platforms, and Microsoft collectively reported revenue growth of 20% and earnings growth of 61%.
Investor attention has remained focused on revenue performance, particularly as a measure of returns from artificial intelligence investments.
AI Spending Boom Supports Future Growth
The ongoing surge in AI-related capital expenditure is further strengthening the earnings outlook. Goldman Sachs estimates that hyperscaler spending on AI infrastructure could reach $751 billion in 2026.
This figure is $80 billion higher than projections at the start of the earnings season and represents an 83% increase compared to 2025 levels.
According to Snider, this trend is driving upward revisions in earnings forecasts for AI infrastructure companies and increasing the likelihood of stronger-than-expected S&P 500 performance.
Margin Pressures and Market Risks
Despite the strong earnings environment, Goldman Sachs pointed out that profit margin expectations across most sectors have been revised lower due to rising commodity costs.
In addition, the market reaction to earnings beats has been relatively muted this season, suggesting that much of the positive news may already be priced in.
Investor Positioning Signals Caution
Investor positioning has also become more stretched. Goldman Sachs’ U.S. Equity Sentiment Indicator has risen to 1.7, a level historically associated with below-average market returns over the following two to eight weeks.
Market Outlook
While strong corporate earnings continue to support the stock market, rising costs, geopolitical risks, and elevated investor positioning could limit near-term upside and increase volatility in the weeks ahead.
