The central message this week is that the earnings engine remains powerful, but markets are again being asked to look through geopolitical risk, elevated oil, and a still-firm inflation backdrop. Economic data points to an expansion that is slowing only gradually, not stalling, which keeps the bar high for bears even as expectations for the next five quarters begin to look ambitious for a six-year-old cycle. In this environment, it remains important to distinguish between “good” growth that supports earnings and “too hot” data that could delay policy relief.
What The Data Is Telling Us
Economic data for the week painted a picture of steady but not runaway growth. Consumer Confidence improved to 92.8, extending an upward trend and suggesting households remain reasonably constructive despite geopolitical noise. Hard activity indicators were mixed but generally supportive: durable goods ex-transportation rose 0.9%, headline durable orders gained 0.8%, and housing indicators showed a rebound in permits even as starts remain choppy.
The inflation and growth mix remains the main challenge. The advance GDP print for Q1 came in at 2.0%, below earlier expectations but still consistent with an economy operating above stall speed. PCE prices rose 0.7% month over month and core PCE 0.3%, while the Employment Cost Index increased 0.9%, reinforcing the view that inflation progress is slower than policymakers would like and that the Fed can afford to stay patient.
Labor and leading data did little to change the narrative. Initial jobless claims held at a low 189K, and continuing claims remained contained, signaling no clear turn in the labor market. The ISM Manufacturing Index printed at 52.7 and the S&P Global U.S. Manufacturing PMI at 54.5, both in expansion territory, while the Leading Economic Index slipped again, hinting at slower momentum but not yet signaling an imminent recession.
What Moved Markets
The Fed stayed on hold at 3.50–3.75%, as expected, and emphasized data dependence, which markets interpreted as a continuation of the “higher for a bit longer” stance rather than a hawkish pivot. Bond yields responded more to the upside surprise in PCE and the strong Employment Cost Index than to the GDP miss, keeping real yields elevated and financial conditions only modestly easier than during the height of recent stress.
Oil and rate dynamics continued to diverge from equities. Crude remains elevated in the wake of the Iran conflict, and the move in front-end energy prices versus the equity response has revived the question of whether stocks are underpricing the risk of a more persistent supply shock. Research suggests that while oil still matters, the global economy is structurally less sensitive to energy than in prior decades, which helps explain why the S&P 500 has been able to make new highs even as crude and yields sit well above
pre-conflict levels.(12)
Earnings were the real driver. Strong early-season reports pushed the S&P 500 to fresh highs despite stalled Iran negotiations, reinforcing the idea that profit growth, not multiple expansion, is doing the heavy lifting at this stage in the cycle. The key debate is whether consensus expectations for roughly 19–21% S&P 500 EPS growth over the next several quarters are realistic for a mature expansion.
Themes in Focus
- Earnings strength vs. cycle age
Current consensus calls for high-teens EPS growth in each of the next several quarters and roughly 19% growth for the full year, which is not unprecedented in nominal terms but would be unusually strong given where the expansion sits in its fifth to seventh year window. Bank Credit Analyst’s (BCA) analysis shows that, on a peak-to-peak basis, this cycle’s earnings growth so far is comparable to prior long expansions—but would begin to look like an outlier if it fully meets current estimates over the next five quarters. (12)
- Margins and the profit machine
S&P 500 profit margins remain near all-time highs, supported by a still-weak labor share of income, decades of consolidation, and ongoing efficiency gains from technology adoption. With AI and automation poised to deepen those efficiencies, margin pressure from wages looks more likely to be gradual than abrupt, which
supports the idea that earnings can stay elevated even if top-line growth moderates.
- Capex, AI, and data centers
Capex intentions indicators have rebounded to post-pandemic highs, with BCA highlighting a re-acceleration in planned business investment and an “unstoppable” near-term data center boom. This reinforces the theme of an AI-driven capex cycle that supports industrials, select tech, and power/infrastructure demand, even as
other parts of the economy slow. (12)
- Oil isn’t the 1970s, but still matters
The Iran conflict and risks around the Strait of Hormuz have pushed crude higher and kept a risk premium embedded in the curve, yet the global economy now uses far less oil per unit of GDP than in prior crises. That structural shift helps explain why equities can rally even as oil prices and Treasury yields remain elevated, though an extended or more severe supply shock would still weigh on global activity and profits.(12)
The Bigger Picture
The framing is that earnings are “great” and the outlook is bright, but the combination of high expectations and a maturing expansion makes the next five quarters a potential stress test. The research compares this cycle’s earnings trajectory with prior long expansions and concludes that while growth to date is not extreme, sustaining consensus through 2Q27 would push this cycle into historically strong territory—especially in real terms once inflation is stripped out.(12)
At the same time, the forces that have supported elevated margins remain intact. Labor’s bargaining power is still structurally weaker than in prior decades, consolidation benefits from earlier M&A continue to accrue, and the integration of information technology and AI into corporate processes is likely to accelerate rather than fade. Against that backdrop, the risk to earnings may be more about an eventual growth slowdown or exogenous shock (e.g., an extended supply disruption) than an imminent collapse in profitability.
How We’re Thinking About It
This mix argues for maintaining meaningful equity exposure but recognizing that the risk/reward is becoming more nuanced. With earnings doing the heavy lifting and profit margins still well-supported, underweighting risk assets without a clear recession signal remains a high-bar call. At the same time, the combination of elevated oil, slower progress on inflation, and historically strong earnings expectations suggests that disappointments in any one of those areas could spark volatility.
Portfolio construction therefore remains biased toward businesses with durable earnings drivers, pricing power, and clear strategic advantages, especially where AI and capex tailwinds are visible. More cyclical, commodity-sensitive, or highly rate-dependent exposures still warrant selectivity rather than blanket avoidance, but this is a moment to emphasize quality and balance sheets over pure beta.
Closing Thought
The through-line of this week’s research is that strong earnings and resilient margins continue to justify equity markets’ optimism—but that does not mean investors can be complacent. Bull markets often sprint to the finish, and a “blowoff” phase is possible if AI-driven capex and stable margins meet today’s optimistic earnings path. For now, a neutral-to-constructive stance on risk assets, with a bias toward quality and durable
growth, remains consistent with the data and with the idea that this expansion still has room to run, even if the probability of positive surprises is lower than it was earlier in the cycle.
Earnings in Brief
- GM – Raised 2026 EBIT and EPS guidance despite ongoing EV restructuring charges and higher commodity/oil assumptions, while keeping free cash flow targets intact.4
- Corning (GLW) – Posted double-digit sales and EPS growth, with optical and solar segments leading and a longer-term AI/data-center and solar build-out story taking shape.5
- EBAY – Reported double-digit GMV and revenue growth with improving buyer metrics and clear payoffs from AI-native tools and recommerce focus.6
- IBM– Delivered 6% revenue growth, double-digit free cash flow growth, and its strongest Q1 free cash flow in a decade, while reaffirming a 5% revenue and 1-point margin expansion plan for 2026.1
- META– Posted 33% revenue growth and a 41% operating margin, leaning hard into AI- driven engagement and a massive multi-year compute build that raises the stakes on future monetization.2
- MSFT (Microsoft)– Likewise reported solid cloud and AI momentum, underscoring that the earnings engine in key platforms remains very much intact.3
- Air Products (APD) – Posted a strong quarter, raised full-year EPS guidance, and continued to show resilience in industrial gas, electronics, and aerospace, even as helium and Middle East uncertainty remain key watch items.7
- Chipotle (CMG) – Delivered modest but improving top-line trends, with positive transactions, strong loyalty engagement, and early benefits from operational initiatives, though near-term margins remain under pressure from cost inflation and value-focused pricing.8
- Bristol Myers Squibb (BMY) – Turned in a steady quarter with a growth portfolio up 9% and management signaling results are tracking toward the upper end of full-year guidance, while investors now look ahead to a dense set of late-2026 and 2027 pipeline catalysts.9
- Qualcomm (QCOM) – Beat on EPS and continued to diversify beyond handsets, with strong automotive and IoT growth helping offset a temporary memory-driven handset slowdown, while agentic AI, data center silicon, and 6G remain the longer-term strategic story.10
- Ulta Beauty (ULTA) – Closed out a strong year with healthy comp growth, rising loyalty engagement, and continued category strength, while 2026 guidance points to more balanced, profitable growth as prior investments begin to mature.11
Sources:
1 – IBM Q1 2026 Earnings Report
2 – Meta Q1 2026 Earnings Report
3 – MSFT Q1 2026 Earnings Report
4 – GM Q1 2026 Earnings Report
5 – GLW Q1 2026 Earnings Report
6 – EBAY Q1 2026 Earnings Report
7 – APD Q1/Q2 2026 Earnings Report
8 – CMG Q1 2026 Earnings Report
9 – BMY Q1 2026 Earnings Report
10 – QCOM Q1 2026 Earnings Report
11 – ULTA Q4 2025 Earnings Report
12 –https://www.bcaresearch.com/reports/216486/view_pdf