2025 was by no means a poor year for US corporate earnings growth. Yet as we enter 2026, earnings momentum is accelerating further, and first-quarter results are defying all logic at a time when investors were already bracing for the fallout from the Middle East conflict. With nearly 70% of companies having reported, analyst forecasts proved far too conservative. As a result, reported earnings have surpassed consensus expectations by 21%, a level rarely observed. For 2026, earnings growth of more than 20% is now being anticipated. Naturally, oil majors are contributing significantly to this figure, as is the technology sector, which continues to be buoyed by the AI theme. That said, the underlying strength of the US economy is translating into excellent business momentum across all sectors. These strong results largely justify the achievement of new all-time highs on both the S&P 500 and the Nasdaq. Nevertheless, a degree of complacency among investors cannot be ignored, which could give rise to a near-term consolidation in equity markets.
European equity markets have lost momentum in recent weeks. The strong performance of the technology sector is benefiting the US market above all. In Europe, this sector is underrepresented, which limits the positive impact on indices. Furthermore, rising oil prices are weighing on a region that is structurally a net energy importer, contributing to the deterioration in leading activity indicators that is now beginning to materialise.
Indeed, PMIs have declined markedly, with a notable weakening in services, while business confidence, particularly in Germany, is hovering at levels reminiscent of the Covid period. Against this backdrop, the European Central Bank has adopted a less restrictive tone than anticipated, mindful of the growing risks to growth momentum. In the near term, however, the situation remains complex: rising energy prices are intensifying inflationary pressures at a time when growth is showing signs of slowing down, a combination that will complicate the task facing Christine Lagarde.
A resolution of the Iranian conflict would represent a major catalyst for European markets, which would then stand to benefit fully. Investor sentiment is indeed severely impaired, with hedge funds carrying heavily net short positions, a level of pessimism that is already largely reflected in current valuations. Such a positive scenario does not, however, appear imminent. In the meantime, opportunities do exist.
The earnings season is in full swing and is broadly in line with previous reporting periods. Certain sectors are even seeing upward revisions to earnings estimates, notably energy, semiconductors, and banks. Given the very strong performance already recorded by energy and semiconductors, we recommend taking partial profits. Conversely, the banking sector, following its underperformance this year, appears to offer an attractive entry point, underpinned by solid fundamentals and still-cautious expectations.
Despite fears of a shortage of certain petroleum products ahead of summer, the Brent crude barrel has only reached $120 since the outbreak of the Middle East war and is currently trading around $109. This trend highlights the remarkable adaptability of logistics operators and reflects hopes for a swift resolution to the conflict.