Mark and Elise Levy’s April Economic Update
The consensus estimate for first quarter (Q1) earnings growth is 12.3%. As we know, barring a swift and sharp economic shock intra-quarter, companies do a tremendous job of beating estimates. In fact, S&P 500 earnings have historically beaten consensus estimates more than 90% of the time. LPL expects Q1 to be no different.
With a boost from higher energy sector profits and a year-over-year decline in the U.S. dollar, balanced against some additional costs and supply chain disruptions across certain industries, LPL expects earnings growth in the mid-teens for the quarter. That would mark the sixth straight quarter of double-digit earnings growth.
Massive artificial intelligence (AI) investment and fiscal stimulus from the One Big Beautiful Bill Act (OBBBA) provide a solid foundation for revenue growth. Strong exports out of South Korea and the latest bump up in manufacturing surveys add to our confidence that Q1 earnings should be solid.
That said, guidance may not be "clean" given not just higher oil prices but disruptions to commodity supply chains and transportation, and higher interest rates. This is why LPL Research is not counting on estimates for the rest of the year to rise through reporting season (starting the week of April 13), with the exception of the energy sector and potentially technology depending on what happens with capital investment plans for the so-called hyperscalers building out AI data centers.
Despite the near-term uncertainty created by the Mideast conflict and its impact on oil, interest rates, and supply chains, the fundamental earnings backdrop remains constructive. Corporate America continues to demonstrate impressive resilience, supported by strong demand trends, massive AI-driven investment, and fiscal stimulus, all of which position S&P 500 earnings for another year of solid growth. While management guidance may reflect understandable caution this quarter, the underlying drivers of profitability remain intact.
At the same time, technical conditions argue for patience. Market internals have weakened, investor positioning is defensive, and oversold signals have yet to reach levels that typically mark durable turning points. Together, these dynamics suggest that while the longer-term outlook is favorable, the near-term path may remain bumpy. As clarity around geopolitical developments improves and volatility subsides, the foundation appears set for earnings to reassert themselves as the primary driver of market direction.
Please reach out to us if you have any questions or concerns.
- Mark and Elise
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