Key Takeaways:
U.S. corporate earnings are showing their strongest performance in five years, with 83% of S&P 500 companies beating analyst expectations as of May 22, the highest rate since 2021.
"Investors are moving beyond the earnings season, and the macro environment is starting to take more center stage," Anthony Saglimbene, chief market strategist at Ameriprise, said, noting that strength in earnings has allowed investors to look past risks like higher yields and oil prices.
With 93% of S&P 500 firms having reported, first-quarter earnings are on track to have jumped 29% from a year earlier, according to LSEG IBES data. Growth was broad-based, with communication services, consumer discretionary, energy, and technology sectors showing particular strength, while healthcare was the only sector to lag. Goldman Sachs Research is projecting 12% earnings-per-share growth for the full year of 2026.
The robust earnings have propelled the S&P 500 to eight straight weekly gains and near all-time highs, while the Dow Jones Industrial Average closed at a record 50,579.70. This performance has pushed the S&P 500's forward price-to-earnings ratio to 20.9, above its historical averages.
This investor optimism is being tested by a difficult macroeconomic backdrop. Long-run inflation expectations surged to 3.9% in May, and the benchmark 10-year Treasury yield recently hit its highest level since January 2025. The challenging environment comes as Kevin Warsh took leadership of the Federal Reserve on May 22, with officials growing more concerned that persistent inflation could force them to raise interest rates later this year.
The current market rally hinges on whether this powerful earnings growth can continue to outpace persistent inflation and the threat of further Fed tightening. Investors are now looking ahead to the April personal consumption expenditures (PCE) price index for a key inflation reading and the start of second-quarter earnings reports in July.
This article is for informational purposes only and does not constitute investment advice.
