Iran shock affecting firms differently, not sectors

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US equities are demonstrating surprising resilience in the latest earnings season, with corporate profitability continuing to outperform expectations despite geopolitical tensions and shifting monetary policy signals.

According to a recent market strategy report, the median company in the S&P 500 posted earnings-per-share (EPS) growth of 16%, while the typical earnings “beat” reached 6% — the strongest in four years. Analysts note that this strength is broader than expected, extending beyond technology giants into sectors such as financials, industrials and consumer cyclicals.

Revenue performance has also been robust, with companies delivering a 2.1% average revenue surprise, above historical norms. This suggests firms are successfully exercising pricing power, even as input costs rise.

While large technology firms and semiconductor companies remain key drivers, the recovery is increasingly widespread. Small-cap stocks, for instance, are now expected to deliver 21% forward earnings growth, a sharp increase from earlier in the year.

Earnings revisions — a key indicator of future expectations — are also trending upward across sectors, signaling continued optimism about the corporate outlook.

On the policy front, the US Federal Reserve has signaled a more cautious stance on interest rate cuts, citing strong economic data and inflation risks tied to commodities. Markets have since scaled back expectations for near-term rate reductions.

Historically, equities can still perform well in such an environment. When earnings growth remains strong and rates are on hold, stock returns have typically stayed in the mid-teens range over a 12-month period.

Despite concerns over liquidity, bond market volatility, and geopolitical risks, analysts emphasize that earnings growth remains the primary driver of market performance.

With 2026 earnings forecasts now pointing to roughly 21% annual growth, supported by both revenue expansion and improving margins, the outlook for equities remains constructive — provided no major external shocks emerge.