Initially, I thought my prediction of 20% EPS growth in Q1 might have been a little too optimistic. As it turns it, it wasn’t nearly optimistic enough. With about 2/3rd’s of companies having reported Q1 results now, the EPS growth rate has soared to an impressive 27.8%. And we still have bellwether companies like Nvidia & Broadcom yet to report.
And this isn’t just a tech story. 8 of the 11 sectors in the S&P 500 now have double-digit earnings growth. This is something you don’t typically see outside of a recovery from a deep recession.
Top-line sales growth has been equally impressive, now at 10.5%. The bulk of these gains are driven by Mag 7 and semiconductor companies, of course. But all 11 sectors are showing year-over-year growth in sales for Q1.
It was a picture-perfect week of earnings, as all 28 megacap S&P 500 companies beat their EPS estimates by an average of 17.3%. While 25 of 28 (89%) beat their sales estimates. Obviously led by the hyperscalers (, , ). But 10 other companies also beat their earnings estimates by a double-digit percentage.
This week, the number of earnings reports starts to die down quite a bit. But we still have 14 megacaps, including Palantir (NASDAQ:), , and Uber (NYSE:).
Looking ahead, the forward EPS has risen for 14 straight weeks now. Up 15% so far this year. While EPS growth estimates for 2027 & 2028 are 16.1% & 12.7%, respectively.
The forward PE is now 21x, which is above the 5-year, 10-year, and historical average. But better than it was when we began the year (23.2x).
On the economy, we got our first estimates for Q2 this week. We are looking at 3.5% annualized growth in Q2, which would be above the historical average of 3.1%. If the economy ends up growing at the rate of these initial estimates, it would push the year-over-year growth for real GDP up into the 2.7% range.
data for March came in at $16.7 trillion, a record high. But the majority of the month’s increase was due to rising energy costs. Nevertheless, real spending is the main driver of GDP growth.
On the flip side, real personal incomes declined slightly for the second straight month. And is besically flat over the past 12 months. At some point, the rising cost of living without an accompanying increase in income will have an effect on spending. But it doesn’t appear to be at that point yet.
The remains the final resistance to this breakout. The prior high of 8306 continues to hold for now.
Part of the reason comes from the rise in interest rates. The briefly touched 5.0% this week, while the and rates all flirt with new highs for 2026.
And a big reason for the rise in rates comes from inflation expectations due to the rising energy costs. is back above $100 for now, getting as high as $111 this week.
Summary: Stocks follow earnings and interest rates. We are seeing remarkable growth in earnings and sales at this point in the business cycle. That’s why the market has been able to look past the worrying headlines and very poor seasonality trend.
No one knows where we are in this bull market, or how much longer it will last. But earnings estimates are quite strong all the way into 2028, and that is usually a recipe for success. Although we expect the usual bumps along the way, and the potential of getting blindsided by something we aren’t even considering at the moment. I don’t know where you put the odds of such an event occurring, but the truth is that it’s never 0%.
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