Earnings season provides one of the clearest windows into the health of companies and the broader economy. While market headlines have focused on geopolitical developments and policy uncertainty, the first quarter results pain a more encouraging picture.
Strong earnings growth supported by continued investment in artificial intelligence suggest that many businesses remain on solid footing. Here are some key observations from the latest reporting season and what they may mean for investors.
Strong Earnings Continue to Support Markets
The earnings season for Q1 2026 is nearly over with 85% of S&P 500 companies beating earnings per share (EPS) estimates. The blended earnings growth rate was 29%, with continued strength from the Information Technology sector at 54% earnings growth. Discussions on AI remained prevalent during the earnings calls with demand for AI infrastructure such as GPUs still strong. On the other hand, enterprise software spending was steady and many software companies beat expectations with AI revenues growing rapidly, albeit from a small base. The bigger topic was the conflict in Middle East, which has had an uneven impact on businesses. Executives in travel and energy businesses have guided for lower margins and earnings pressure in Q2 2026.
A Healthier Backdrop than Last Year
Compared to 2025, corporate performance has improved across most metrics such as revenue growth and margins, even in other sectors besides tech. One reason may be higher business confidence with easing macro and trade uncertainty. While tariffs and recession were hot topics in 2025, they were less mentioned in 2026 with consumer health holding up and businesses continuing to invest. President Trump has proposed new tariffs on forced labour imports but markets did not react much. As for the economy, there could be near-term inflationary shocks for the remainder of 2026 but the 12-to-24-month window has showed little change.
Opportunities in the Year Ahead
For subsequent quarters, the Information Technology and Financials sectors have largely issued positive guidance. The AI boom has shown no signs of subsiding which should accrue to the tech sector in the US. In addition, the financials sector could benefit from a pick-up in trading and dealmaking activities amidst ongoing regulatory reforms. Stronger-than-expected economic growth and wealth creation in certain pockets of Asia may also benefit the consumer sector.
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