Dollar strength pushes Yen to 40-year low despite intervention warnings
The Q1 2026 earnings reporting season is fast approaching, and all signs suggest it will be a good one. Headwinds, risks, and fears remain, but the outlook for growth provides a triple tailwind for the market, likely to continue in Q2. The tailwind includes earnings growth, an outlook for sequential acceleration, and steadily rising forecasts, setting the bar higher with each weekly round of estimate revisions. With this in play, the S&P 500 has almost nowhere to go but up and will likely resume its uptrend before the reporting period is over.
A Triple-Tailwind for S&P 500 Price Action in Earnings Forecasts
At face value, the consensus of estimates puts Q1 S&P 500 earnings growth at 12.5%, with approximately three weeks until the peak season begins. That starts on May 14 with a report from JPMorgan Chase, the largest bank outside of China. The consensus for Q1 is down from the 2025 highs but up significantly from the recent lows, likely to continue higher as the season progresses, and outperformance is likely.
S&P 500 earnings tend to outperform the consensus estimate leading into the season by 300 to 500 basis points and have been running at the high-end of that range in recent seasons. The likely outcome is that Q1 results come closer to 15.5% and potentially higher, given AI trends.
Nothing in the AI data flow suggests that spending is easing, only increasing, as NVIDIA’s (NASDAQ:NVDA) and Micron Technologies’ (NASDAQ:MU) Q4 2025 last reports revealed. The likely outcome is that demand remained strong in Q1, leading these and other AI infrastructure names to outperform their already robust forecasts. Sectorally, the Information Technology Sector is forecast to produce the strongest growth at nearly 45% as of late March. The consensus for this sector rose by 1,000 basis points (bps) over the last three months, resulting in high expectations.
The next strongest sector is projected to be Materials at 24%, underpinned by datacenter demand, and then Financials. Other than those, no other sector is forecast to produce double-digit gains and three, led by Healthcare, are forecast to contract. Within those, the Energy sector is likely to outperform, as energy prices have skyrocketed, signaling windfall revenue and earnings. Healthcare, on the other hand, risks underperforming as burnout, employee shortages, rising costs, and cybersecurity issues erode results.
Guidance to Sustain Uptrend: Concentration Reemerges as a Risk
The earnings results will trigger market responses, but it will be the guidance that sustains them. As it stands, S&P 500 earnings growth is expected to accelerate again in Q2 and then sustain a high-teens pace through the year’s end. Guidance affirming this trend will go a long way towards invigorating market action and catalyzing new highs.
Concentration is among the risks for investors. The market rally has been broadening and may continue to do so, but the earnings outlook suggests that the focus will remain on NVIDIA and Magnificent Seven. NVIDIA continues to hold the number one position, accounting for more than 7.1% of the index, while the top seven names account for approximately 33%, and the next three bring the top ten to just over 40%. At these levels, investors should expect volatility to increase on both upswings and downswings, with NVIDIA at the center of any major market movement.
Oil prices are another risk, as they will impair earnings power across sectors. The bigger risk, however, is the impact of oil on inflation and the outlook for interest rate cuts, which has deteriorated. The market now prices in only a slim chance for rate cuts this year, which is a headwind for businesses and the broadening rally. Lower interest rates are critical for pre-revenue and pre-earnings businesses, while high rates pose hurdles, leaving only established blue-chip players to compete.
Advanced Micro Devices Best-Positioned to Rocket Higher
Advanced Micro Devices (NASDAQ:AMD) is the best-positioned stock for explosive gains this season. While its results are expected to be strong, investors will be looking at the guidance and updates on the upcoming MI450 product launch. The launch, slated for Q3, could accelerate AMD revenue growth to triple-digit levels within quarters.