Strong U.S. corporate earnings, particularly from the technology sector, are overshadowing concerns that the Middle East conflict could weigh on stock markets, according to strategists at Morgan Stanley.
Earnings Revisions on the Rise
In a note, the team led by Michael Wilson highlighted that earnings revisions for the S&P 500 have moved higher across multiple time horizons over the past month. Second-quarter estimates are up two percent, while forecasts for calendar 2026 and the next 12 months have risen three percent and four percent, respectively.
First-Quarter Results Exceed Expectations
The first-quarter reporting season has delivered robust results, with the median S&P 500 company posting an earnings-per-share upside surprise of six percent. That marks the strongest performance in four years, the strategists noted.
Wilson pointed to hyperscalers and semiconductor companies as major contributors to this durability, benefiting from accelerating cloud demand and solid order backlogs. However, he emphasized that the strength is not limited to these cohorts, as upward revisions have also picked up across financials, industrials, and consumer cyclicals, signaling a more durable expansion in profit growth.
Impact of Iran War Seen as Uneven
The impact of the Iran war is expected to remain uneven rather than systemic, with cost pressures affecting companies on a case-by-case basis rather than weighing on entire sectors, Wilson said. Energy companies, meanwhile, are a tailwind for overall earnings as higher oil prices boost their profit growth.
Concentration Risks Persist
Despite resilient earnings and U.S. stocks at all-time highs, concentration risks remain a headache for investors. Seven stocks have generated around 80 percent of S&P 500 returns since the start of the year.
Goldman Sachs Group Inc. strategists led by Ben Snider said the spending boom on AI infrastructure is showing no signs of slowing, with analysts having further ramped up their estimates for hyperscaler spending since the start of earnings season. They noted that the surge in spending estimates is driving a similar rise in earnings estimates for AI infrastructure companies, helping lift the earnings outlook for the broad market and skewing risks to their S&P 500 EPS estimates to the upside.
