Financial analysts believe robust business profits will help stabilize stock markets that have declined since Middle East tensions escalated in late February, driving oil costs higher and raising inflation concerns.
The S&P 500 index has fallen approximately 4% since the conflict began, while petroleum prices have climbed more than 30%.
However, analysts still anticipate first-quarter profit growth of 14% for S&P 500 companies, according to LSEG data. This projection remains close to the 14.4% forecast from early January and exceeds the 12.4% estimate from October 1.
“So much is happening, yet nothing is happening. … Companies inherently are becoming more resilient to geopolitical risks, particularly U.S. companies,” Krishna Chintalapalli, portfolio manager at Parnassus Investments in San Francisco, said in an interview with Reuters.
Energy costs have climbed as the conflict has disrupted shipping through the Strait of Hormuz, intensifying inflation concerns and reducing expectations for Federal Reserve interest rate reductions this year.
JP Morgan analysts project that “each sustained 10% increase in oil prices could yield a 15 to 20 basis point hit to GDP” and warn that if petroleum stays near $110 per barrel through 2026, profit forecasts could decline by 2% to 5% or more if energy costs rise further.
On Wednesday, domestic oil contracts traded around $91 while international Brent crude approached $103.
Market participants fear that escalating energy and fertilizer costs could reignite inflation, reduce consumer purchases and prevent Fed rate reductions. Nevertheless, profit projections have remained relatively stable.
“The companies we talk to, whether they’re in the midst of the AI boom, or they are consumer-oriented companies like Walmart, or they’re industrial companies like FedEx, they take a certain level of uncertainty will remain going forward as par for the course,” Chintalapalli said.
LSEG information through Friday revealed that among 120 first-quarter profit forecasts from S&P 500 corporations, 48% were optimistic while 44% were pessimistic compared to analyst predictions.
“Many companies noted that it was early days or too soon to tell what the impacts will be,” said Lori Calvasina, head of U.S. Equity Strategy at RBC Capital Markets, in a recent note that analyzed company commentary. She added that “the outlook commentary we read left us thinking companies have had good reasons for staying calm,” with the risk to earnings more likely to be in the second half of the year.
Aviation companies, among businesses most vulnerable to rising fuel costs and decreased consumer spending, have helped ease worries about the coming earnings period. United Airlines and Delta Air Lines recently reported that travel demand stayed robust, allowing them to increase ticket prices even while higher fuel expenses forced flight reductions.
“Companies in general play the earnings expectations game pretty well because they want to be able to announce a beat in most cases,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Southfield, Michigan. “So I wouldn’t be surprised if we see some companies start to rein in expectations a little bit to try to dampen enthusiasm so that when they actually come through with the actual announcement.”
Mike Wilson, chief U.S. equity strategist at Morgan Stanley, noted that with forward earnings growth remaining strong, the current 12-month forward price-to-earnings ratio for the S&P 500 has dropped 15% from its October highs, which “supports our stance that the probability remains low for this oil spike to end the business cycle.”
Venu Krishna, head of U.S. equity strategy at Barclays, on Tuesday increased the firm’s 2026 S&P 500 price target to 7,650 from 7,400. This move reflected confidence that strong corporate profits driven by technology companies and steady economic expansion will overcome rising macro risks, including Middle East warfare, AI-driven disruption and stress in private credit markets.
Ultimately, positive expectations for business earnings depend on hopes the Iranian conflict will not continue indefinitely.
“Everything suggests that the market has convinced itself, or investors have convinced themselves, that this is kind of measured in weeks, maybe a couple months, and not anything kind of too much further from that perspective,” said Michael Arone, chief investment strategist at State Street Investment Management in Boston, in an interview with Reuters.
“This quarter’s earnings won’t be so impacted, contributing to why you haven’t seen a big negative reaction. But what do they have to say about the outlook, given where we are in the middle of April on the conflict, will be crucially important to where we go next.”
