Q1 2026 preview: record expectations meet geopolitical risk

Expectations have never been higher

According to FactSet, the consensus estimate for S&P 500 first quarter (Q1) 2026 earnings growth, as of 31 March, stands at 13.2% year-on-year (YoY). Should this materialise, it would extend an unbroken run of double‑digit earnings growth dating back to fourth quarter (Q4) 2024.

This is also the highest starting estimate heading into any earnings season in the FactSet data set since second quarter (Q2) 2022. For context, the equivalent estimate entering Q4 2025 was just 8.3%, while actual growth for that quarter came in at 13.9%, an outperformance of 5.6 percentage points. The Q1 2026 starting estimate is approximately 60% higher than the equivalent figure ahead of Q4 2025.

If the long‑run beat pattern holds, optimism may still prove justified. Over the past four quarters, 79% of S&P 500 companies exceeded estimates, with an average upside surprise of 7.2%. Applying that pattern to the current base would imply index‑level earnings growth approaching 19%, the strongest quarterly outcome since Q4 2021.

Based on London Stock Exchange Group (LSEG) data, of the 22 companies that had reported results as at 13 April, 77% beat the mean earnings per share (EPS) estimate. The aggregate surprise came in at 14.3%, providing a constructive early signal. That said, the elevated starting point leaves little margin for disappointment, and any shortfall in guidance is likely to be punished.

S&P 500 earnings growth estimates

Valuations offer a more supportive floor

One important offsetting factor is valuation. The market enters this earnings season on a more reasonable footing than earlier in the year. According to LSEG data, the S&P 500 is currently trading on 19.4 times forward 12‑month earnings. This sits above the 10‑year average of 19.0 times, but below the 5‑year average of 20 times, and marks the lowest valuation since the Liberation Day sell‑off in April 2025.

This recent valuation compression creates a more constructive entry point. Positive earnings surprises and upbeat forward guidance now have greater capacity to drive multiple expansion than when the index was trading at around 22 times forward earnings a quarter ago.

That said, the valuation buffer is not guaranteed. Should companies begin trimming full‑year guidance to reflect uncertainty stemming from higher energy costs, the support could erode quickly.

S&P 500 valuation and price

Risk shifts from tariffs to geopolitics

12 months ago, 452 S&P 500 companies mentioned ‘tariff’ or ‘tariffs’ on Q1 2025 earnings calls, making trade policy the defining issue of that reporting season. For Q1 2026, geopolitical risk has taken centre stage.

The conflict between the United States (US) and Iran, which began on 28 February, has triggered an energy price shock. Elevated commodity prices feed directly into fuel, logistics, manufacturing inputs and packaging costs, compressing margins for companies with material exposure to energy or freight.

Beyond direct cost pressures, the broader erosion of household purchasing power risks softening consumer demand, even for businesses with limited energy exposure.

Because the bulk of Q1 activity occurred before the conflict erupted, headline earnings numbers will provide limited insight into the true cost impact. The key focus this season will therefore be forward guidance.

Investors should concentrate on three metrics:

1. Revenue beats: which are often the clearest indicator of underlying demand
2. Operating margin trends: which reveal how much of the cost increase has been absorbed
3. Revisions to full‑year guidance: which will determine whether the current consensus forecast of 17.4% full‑year earnings growth remains realistic.

Not all sectors are equal

Eight of the 11 sectors are projected to report YoY earnings growth in Q1 2026:

• Information Technology (+45.0%)
• Materials (+24.2%)
• Financials (+15.1%)
• Health Care (-9.8%) is expected to lead the decline, with Merck's one-time acquisition charge weighing down on the sector's growth rate. Excluding Merck, the sector would be on track to report earnings growth of approximately 2.8%.
• Energy stands out as the wild card amid the Middle East conflict. Its earnings growth estimate swung from 0.3% at the start of the year to 12.9% on 3 April as higher commodity prices flowed through to upstream earnings, before falling back to -0.1% on 10 April following downward revisions driven primarily by ExxonMobil's guidance on production disruptions and hedging losses.

The volatility in the energy sector alone illustrates precisely why forward guidance - rather than the headline growth rate - will define how this earnings season is ultimately judged.

Earnings calendar

The bulk of the earnings season will play out over the next six weeks. The financial sector opens proceedings, with Goldman Sachs and JPMorgan Chase among the first to report.

Technology and consumer heavyweights, including Microsoft, Alphabet, Meta Platforms, Apple and Amazon, dominate the final week of April. NVIDIA, which follows a different fiscal reporting calendar, is scheduled to report in late May.