Blowout Earnings Reports Give Wall Street Reason to Believe the Bull Case

Ships are still stuck in Hormuz, but that hasn’t stopped the Wall Street bull.

While the S&P 500 ticked down 0.24% on Monday as Iran War peace talks appeared to stall, that snapped a 14-day winning streak that pushed the market to three consecutive closing records through Friday. And recent data from FactSet shows a rip-roaring start to earnings season is giving Wall Street plenty of evidence to keep believing in its bull case.

Politics, Schmolitics

So why did Wall Street shrug off a war that had the world in panic mode just a month ago? As veteran market researcher Ed Yardeni told Bloomberg last week: “History shows that geopolitical crises turn out to be great buying opportunities … investors are looking past the war.” And after looking past the war, investors found plenty of upside. Friday’s record close capped off the longest winning streak since 1971, driving the index up more than 12%. 

The rally was fueled in part by Big Tech, which has returned to Wall Street’s good graces after a big-time valuation reset. The Roundhill Magnificent Seven ETF is up 18% from a March 30 low, outpacing the broader market; according to Bloomberg data analysis, more than half of the recent gains in the broader index were driven by a new Mag 7 that swaps Tesla for Broadcom. Bloomberg Intelligence data projects the standard Mag 7 cohort will deliver profit growth of 19% this year, compared with just 17% for the rest of the index. “Anytime geopolitics takes front and center, it usually means focus on fundamentals and you can make a lot of money,” Morgan Stanley senior portfolio manager Andrew Slimmon told MarketWatch.

None of the cohort has reported its latest quarterly results yet (Tesla kicks things off on Wednesday), though the FactSet report shows that the Other 493 are riding the rising tide:

• Of the 10% of S&P 500 companies that reported through Friday, FactSet found that 88% reported actual earnings per share above estimates. That beats both a five-year average of 78% and a 10-year average of 76%.
• Meanwhile, all 11 sectors had reported year-over-year revenue growth, with strong revenue figures in the financial sector pushing the overall growth rate to 9.9%. If that holds through the rest of the earnings season, it would mark the highest figure since the third quarter of 2022.

Bear With Me: Not everyone’s buying the bull case. Matt Gertken, chief geopolitical strategist at BCA Research, said on CNBC’s Squawk Box Monday that investors risk growing “complacent” with assumptions of imminent peace in the Middle East. Meanwhile, Deutsche Bank’s macro research head flagged in a note to clients on Monday that optimism over peace talks similarly sparked a market rally in the weeks following Russia’s invasion of Ukraine in 2022, which was followed by the worst selloff since 2008.