Published April 10, 2026
Stock valuations are derived from earnings and how much investors are willing to pay for those earnings. The note below suggests that the stock market’s recent war-related decline has created a significant gap between stock values and earnings expectations. If so, there could be fuel for stocks in the coming weeks. Of course, another jump in oil prices could hamper the “earnings rescue” for stocks.
Here’s a recent Marketwatch article outlining the subject:
“Retail investors have been “skipping the dips, selling into rallies, and positioning more defensively,” according to JPMorgan.
The bank noted such activity was in evidence even during Wednesday’s rally, which that cohort sold into — a marked departure from its behavior last year. That’s as institutional investors have also backed away from U.S. stocks this year, against a backdrop of a volatile Middle East conflict and worries over AI disruption.
But those bearish attitudes may be about to meet their match, with first-quarter earnings growth expected to come in at a four-year high, according to Deutsche Bank strategists led by Binky Chadha.
Deutsche expects S&P 500 first-quarter annual earnings growth of 19%, which would beat the already “high bar” of 16.2% forecast by Wall Street analysts. Goldman Sachs will kick off the reporting season on Monday.
“Equity investor positioning meanwhile is significantly underweight and in line with an imminent collapse in earnings growth. Positioning is notably low for sectors in the market crosshairs currently, like financials and tech, especially software,” Chadha and his team told clients in a note on Wednesday.
The team said that 16% growth represents a level “rarely expected at the start of any earnings season,” but it’s justified, according to Chadha and company, by a favorable macro environment, rising cyclical growth drivers and a weak-dollar tailwind.
That would be the strongest quarterly growth in four years, up from 13.4% in the fourth quarter and an 8.5%-to-14% range over the past two years, according to the bank. In the last two decades, the consensus has been this strong only three times: during the recovery from deep slumps from the 2008-09 global financial crisis, amid the rebound from the COVID-19 pandemic and as a boost from the corporate-tax cuts of the first Trump presidential term was being registered.
Deutsche Bank said earnings growth would broaden out across sectors, with 10 of 11 in positive territory, led by megacap growth and tech. That category, which has seen growth above 24% in every quarter since the third quarter of 2023, should see earnings growth jump to 35.7% from 27.5% in the fourth quarter, led by semiconductor manufacturers.
The team also sees financials shining, from growth of around 11% in the lower half of the range of the prior quarter to nearly 20%. Industrials, driven by continued artificial-intelligence demand and some manufacturing pickup, are expected to bounce from 2.8% to 7.9%. Consumer cyclicals could see some modest improvement, from contraction of 7.5% to a drop of just 1.6%.
Strategists noted that the dollar fell 6.8% in the first quarter—its largest drop in five years—which likely increased S&P 500 earnings growth by 4.1 percentage points. Energy, materials, megacap growth stocks and tech and industrials would be the biggest beneficiaries.
Higher oil prices may only give energy earnings a modest boost in the quarter, given that they are only up by 2% annually on a quarterly average basis. “If oil prices stay elevated, they will be a significant boost to energy earnings in the coming quarter,” the Deutsche Bank strategists said.
Their chart showed where investors are positioned ahead of the start of earnings season:
“Equity positioning has historically been well correlated with earnings growth and is in line with the latter turning negative imminently, a far cry from the strong growth we expect in Q1,” said Chadha and team.
Market Update
Investors focused this week on the outlook for a ceasefire in Iran and hopes for resulting lower oil prices. Monday brought a +0.4% gain for the indexes despite a lack of concrete signals that a ceasefire was imminent. A sharp rise in oil prices sent stocks notably lower in morning trade Tuesday. But buyers stepped in to reverse the decline back to a flat close for stocks. Health insurers received positive news on government payments for Medicare Advantage. Chip maker Broadcom announced further business with Google and AI leader Anthropic. The day’s positive reversal suggested that investors have largely adjusted to the existing war situation and are turning their attention back to corporate earnings, AI, etc. Markets got what they wanted Tuesday night when a two-week ceasefire was announced. Oil prices plummeted -15% sending stocks off to the races. A +2.5% stock market rally ensued Wednesday. Another +0.6% was tacked on Thursday despite oil prices resuming their climb as traders backed off their ceasefire enthusiasm somewhat. Israel’s bombing in Lebanon became a sticking point for the opening of the Strait of Hormuz, giving oil traders some room for caution. A monthly inflation report stayed flat leaving core inflation around +3% to keep interest rates elevated. A mixed market Friday ahead of planned U.S.-Iran talks scheduled for Saturday. Software stocks reacted badly to a new Anthropic AI product that is rumored to put further pressure on legacy software makers. Semiconductors, by contrast, pushed this week’s breakout further upward on positive news from Intel and Marvell.
Investors added to the prior week’s relief rally to send the S&P 500 (SPY) higher by +3.60%. The Nasdaq 100 (QQQ) rose +4.46%. Small cap stocks (IWM) vaulted +3.98%. Investors looked past sharply higher oil prices in pushing stocks back near pre-war levels.
Warm wishes and until next week.