Key Takeaways:
Corporate profits for S&P 500 companies surged 27.8 percent in the first quarter from a year ago, marking the highest growth rate since 2021 and fueling a record-setting month for US equities.
“As I look at how companies have reported results, I would argue that resilient is almost too modest of a word. There’s real, obvious strength,” said Marta Norton, chief market strategist at Empower. “The foundation of the economy is proving to be very, very strong.”
The performance represents a significant beat, with the proportion of companies missing analyst estimates hovering at the lowest level since 2021. Information technology earnings per-share grew about 50 percent, outpacing the broad index, while consumer discretionary stocks climbed 12 percent in April.
The robust earnings season helped the S&P 500 and Nasdaq Composite shrug off geopolitical headwinds to post their best monthly gains since 2020 in April, rising more than 10 percent and 15 percent, respectively. Investors now look to fresh jobs data and another 100-plus earnings reports next week to sustain the rally.
The technology sector was a primary driver of the quarter's blockbuster results. Megacap companies investing heavily in artificial intelligence reported strong growth, though with mixed market reactions. Shares of Alphabet Inc. (GOOGL) jumped after showing blowout cloud-computing growth, while Microsoft Corp. (MSFT) and Meta Platforms Inc. (META) saw shares slump after their reports.
The rally in semiconductor stocks was a standout theme. Advanced Micro Devices Inc. (AMD) shares have soared more than 80 percent since the end of March, while Intel Corp. (INTC) jumped 114 percent in April alone. The Philadelphia SE Semiconductor Index (.SOX) is up about 48 percent over the same period, closing at an all-time high Friday.
Beyond tech, however, analysts noted surprising resilience. S&P 500 companies outside the technology realm posted their sharpest positive earnings surprises since the fourth quarter of 2024, according to Seaport Research Partners. Big US banks notched their most profitable quarter ever, lifting the KBW Bank Index 10 percent in April, and small-cap stocks in the Russell 2000 Index are up 13 percent year-to-date, outpacing the S&P 500’s 5.6 percent gain.
The stellar earnings performance comes despite a complex macroeconomic backdrop. Surging oil prices, with Brent crude recently topping $120 a barrel for the first time in four years, have become a key concern mentioned by over 70 percent of S&P 500 companies reporting in April, according to Bank of America.
That pressure is compounded by a more hawkish Federal Reserve. This week’s policy meeting revealed a divided central bank, pushing the 10-year Treasury yield to a one-month high around 4.38 percent. Higher yields could pose problems for equities by increasing borrowing costs for companies and consumers.
“We have these fast-rising profits on one side, and then on the other, we have upward pressures on oil prices and bond yields,” said Angelo Kourkafas, senior global investment strategist at Edward Jones. "If we're sitting here in a month or two, and Brent crude is still over $120... that is a very different scenario than what we're looking at right now," added Jeff Buchbinder, chief equity strategist for LPL Financial.
The strong earnings growth suggests the market can withstand these pressures for now. The results provide a powerful counter-narrative to concerns about oil shocks and interest rates, suggesting corporate America's profit engine remains intact. Investors will watch the upcoming April payrolls report, expected to show job growth of 60,000, for the next read on the economy's health.
This article is for informational purposes only and does not constitute investment advice.
