Goldman Sachs strategists recently pointed out in a report that although the consensus expectations for S&P 500 components’ earnings per share (EPS) for this year and next are about 4% higher than the January levels, this increase has come almost entirely from just two sectors: energy and information technology. Rising energy prices driven by the Middle East conflict and investment enthusiasm in the artificial intelligence (AI) sector have been the core drivers behind the rise in tech stocks.
The strategist team led by Ben Snider stated that since the outbreak of the Iran conflict, just two companies — Micron Technology (MU) and Exxon Mobil (XOM) — have together contributed more than 60% of the total upward revision in consensus expectations for the S&P 500’s 2026 EPS. Meanwhile, earnings expectations for half of the index’s components have seen no adjustment at all over the past few months. Snider said, “The vast majority of the recent upward revisions to S&P 500 earnings expectations have been driven by only a handful of individual stocks.”
Last Friday, the U.S. stock benchmark index closed at a record high and posted its best weekly performance since 2026. However, Goldman Sachs strategists believe that this rally, much like the earnings upgrades, lacks broad-based support. The market breadth indicator tracked by their team has fallen to levels seen only a few times in recent decades, surpassing only the levels during the dot-com bubble and mid-2023.
The Goldman Sachs team believes that the key test for the current market is whether the core phase of the first-quarter earnings season can broaden the scope of earnings upgrades and the diffusion of market gains. Developments in the navigability of the Strait of Hormuz are particularly critical for cyclical sectors tied to the economic cycle. Data shows that about 81% of large-cap U.S. companies have reported EPS exceeding market expectations so far, with JPMorgan Chase, Bank of America, Citigroup, and Goldman Sachs all posting record revenues from their stock trading businesses.
Goldman Sachs expects S&P 500 EPS to grow by 12% this year, which is broadly in line with the top-down aggregate forecast of Wall Street strategists but below the 18% bottom-up market expectation. The strategists stated that downside pressures mainly stem from weakening consumer demand and rising input costs caused by geopolitical conflicts, while upside potential is linked to AI investment and productivity improvements. Overall, risks are tilted slightly to the upside.
