Wall Street’s Most Anticipated Earnings Season in Four Years: Can the Magnificent Seven Sustain the US Stock Bull Market?

TradingKey - The 2026 U.S. earnings season officially kicked off last week, as major banks reporting early delivered stellar results, setting a positive tone for the entire quarter.

The current market consensus for year-over-year earnings growth among S&P 500 companies in the first quarter of 2026 is 13.2%, the highest expectation on the eve of an earnings season since the second quarter of 2022. If U.S. companies continue their streak of beating estimates, this quarter could potentially post the strongest earnings growth since the fourth quarter of 2021.

Over the past four quarters, 79% of S&P 500 companies have exceeded expectations with an average surprise of 7.2%. Based on this trend, actual profit growth for this quarter could approach 19%, sustaining the double-digit growth momentum seen since the fourth quarter of 2024.

Magnificent Seven Drives Tech Sector Comeback

The technology sector has recently staged a strong reversal, breaking away from its previous weakness. According to Bloomberg, since the S&P 500 bottomed out on March 30, 2026, the tech sector has jumped from the benchmark index's worst-performing sector to its leading pioneer.

The tracking index for the seven tech giants known as the "Magnificent Seven" has gained a cumulative 20% during this period, completely recovering the 17% decline seen since last October. Among them, Microsoft's share price rebounded 19% from its recent low, reversing a previous 34% slump.

More than half of the S&P 500's recent gains have come from Nvidia ( NVDA ), Amazon ( AMZN ), Microsoft ( MSFT ), Broadcom ( AVGO ), Google's parent company Alphabet ( GOOGL ), Facebook's parent company Meta Platforms ( META) and Apple ( AAPL )—these seven companies.

Bloomberg data shows that in just a few weeks, the total market capitalization of these seven giants has surged by approximately $4 trillion.

"The speed of this reversal is quite stunning," said Paul Wick, Chief Investment Officer at Seligman Investments, which manages approximately $30 billion in assets. "To some extent, this is a catch-up rally and the result of investors rebalancing their positions."

This surge is difficult to explain through fundamental changes—there has been no significant improvement in these companies' fundamentals over such a short period.

Geopolitical risks persist as tensions in the Middle East continue to pose a threat to global economic growth. While oil prices have pulled back, they remain at high levels, keeping inflation within a sticky range.

Even so, the S&P 500 and the tech-heavy Nasdaq 100 both hit all-time highs last week, and the rally continues.

Although concerns regarding massive spending on artificial intelligence have not fully dissipated, the valuations of tech stocks have returned to reasonable ranges following the previous sell-off.

Excluding Tesla ( TSLA ), the price-to-earnings ratio of the "Magnificent Seven" is approximately 24 times forward earnings, down from 29 times at the end of last October and nearly in line with the overall valuation of the S&P 500. Meanwhile, the market expects earnings growth for these tech giants to remain strong, with profit growth rates projected to reach 19% in 2026 and rise further to 22% in 2027—both higher than the rest of the S&P 500 components.

S&P 500 Bullish Signals Cluster

Citigroup ( C) recently issued a tactical upgrade for U.S. equities, forecasting that the S&P 500 will climb to 7,700 by the end of 2026.

Fundstrat co-founder Tom Lee is equally bullish, believing the S&P 500 could challenge the 7,300 level in the short term. He argues that the AI computing infrastructure sector, by virtue of its high earnings certainty and high beta, will lead this rebound, and the tech track centered on AI computing power will dominate the next super bull market.

Meanwhile, UBS ( UBS )'s latest forecast indicates that first-quarter earnings for S&P 500 constituents are expected to achieve 17% year-over-year growth, marking the fastest pace since the fourth quarter of 2021.

The firm attributes this robust earnings growth to the broad expansion of the U.S. economy and the explosive growth in semiconductor demand driven by AI infrastructure construction. Furthermore, UBS is particularly optimistic about the financials and materials sectors, believing that earnings growth in these two segments will exceed market averages and that actual results are highly likely to beat current expectations.

Goldman Sachs ( GS) noted from a positioning perspective that current positioning for the "Magnificent Seven" tech giants is at its "cleanest" state of the year, with net positioning at the 50th percentile and gross positioning at only the 22nd percentile over the past three years.

Goldman Sachs trader Ryan Sharkey stated that if geopolitical tensions ease during the earnings season, strong earnings data could serve as a catalyst for capital to re-enter the market. Momentum longs, AI beneficiaries, and the memory and semiconductor sectors may be among the first to attract capital inflows.

Earnings Concerns Amid US-Iran Conflict

In the first quarter of 2025, trade policy was the focal point of the U.S. earnings season—452 S&P 500 components mentioned tariffs or trade duties during earnings calls, underscoring the deep impact of global trade tensions on business operations at the time. By 2026, geopolitical risk has supplanted tariffs as the primary concern for both corporations and investors.

The U.S.-Iran conflict that erupted in late February 2026 triggered sharp volatility in international energy prices, with rising commodity costs rapidly transmitting to the corporate sector and driving up expenses for fuel, logistics, raw materials, and packaging. Profit margins have already significantly contracted for firms heavily dependent on energy and freight. Furthermore, inflationary pressures have dampened household purchasing power, creating risks of soft consumer demand that could indirectly impact even those companies with minimal energy exposure.

However, since the conflict broke out toward the end of the first quarter, the majority of the period's business activity had already concluded, meaning the current quarterly financial data does not fully reflect the extent of these cost pressures.

The market generally expects that the uncertainty stemming from geopolitical tensions will be a primary focus in full-year corporate guidance, serving as a critical variable for future earnings expectations.