Best Earnings Season in Five Years — But Is It Enough to Calm Markets?

TLDR

• S&P 500 Q1 earnings per share growth is tracking at 26% year-on-year, the highest since 2021
• 64% of companies beat both EPS and sales expectations, also a five-year high
• Major tech firms guided 2026 capital spending $50 billion above consensus
• Hyperscale capex for 2026 is now projected at over $800 billion, up 67% year-on-year
• Markets are watching Nvidia earnings closely for signals on AI demand and spending

More than 90% of S&P 500 companies have now reported first-quarter results. Bank of America says it is shaping up to be the strongest earnings season since 2021.

Earnings per share growth is tracking at 26% year-on-year. Even after stripping out one-time gains from Amazon, Meta, and Google, the figure still sits at 18%.

Sixty-four percent of companies beat both EPS and sales expectations. That is the highest rate in five years.

Guidance has held up better than many expected. The ratio of above- to below-consensus forward guidance is running at 1.6 times, well above the long-term average of 0.8 times.

Full-year 2026 EPS growth is now expected at 22% year-on-year. That is up from the 15% forecast at the start of the year.

Bank of America strategists said they believe that level of growth is achievable, led by AI investment and strength in the commodity sector.

Big Tech Raises Spending Forecasts

Amazon, Google, Microsoft, and Meta collectively guided their 2026 capital spending $50 billion above what analysts had expected.

Bank of America’s semiconductor team now projects total hyperscale capital expenditure for 2026 at over $800 billion. That is up 67% from the prior year.

Analysts see a path toward more than $1 trillion in hyperscale capex by 2027. Capital spending as a share of operating cash flow is expected to climb from 70% in 2025 to nearly 100% in 2026.

That level of spending puts near-term free cash flow under pressure for major tech companies.

Markets Watch Nvidia and Inflation

On Wednesday, the S&P 500 rose about 0.3% and the Nasdaq gained around 0.5%. Both indexes were lifted by expectations around Nvidia’s quarterly results.

Markets are pricing in a roughly 5.5% move in Nvidia shares following its earnings report. Investors want to know if AI demand is still growing and whether Big Tech will keep spending.

Inflation concerns are also in focus. US bond yields have surged to levels not seen in nearly two decades, which has weighed on growth stocks.

Federal Reserve meeting minutes from April are set for release Wednesday. They are expected to show divisions among policymakers over the path of interest rates.

The Iran conflict continues to push oil prices higher, which has offset more than half the benefit from tax refunds for lower-income households. Company commentary has pointed to a split between upper-income and lower-income consumers, with the latter pulling back on discretionary spending.

On the retail side, Target beat expectations on both revenue and earnings for the first quarter. Lowe’s also topped forecasts on the top and bottom line.

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