Stocks have remained largely resilient in recent weeks despite reports of sticky inflation and risk that the Federal Reserve holds interest rates higher for longer than investors expect. Wall Street strategists believe that's likely due to a better-than-expected set of first quarter earnings.
With 80% of the companies in the S&P 500 (^GSPC) done reporting, the benchmark index is pacing for 5% growth in first quarter earnings per share, per FactSet. This is the biggest year-over-year increase since the second quarter of 2022 and higher than the 3.2% growth analysts had expected prior to the start of the season.
"Higher interest rates usually hurt U.S. stock valuations," Jean Boivin, the head of the BlackRock Investment Institute, wrote in a weekly note on Monday. "Instead, strong Q1 earnings have supported stocks even as high rates and lofty expectations raise the bar for what can keep markets sanguine."
Bullish strategists on Wall Street have been arguing that strong earnings growth has driven the index's roughly 8% rally so far this year and could possibly send stocks even higher.
"At a high level, this earnings period provides further support to our ongoing bullish view toward S&P 500 fundamentals, even as we navigate the Fed and underlying economic conditions," Citi's equity strategy team led by Scott Chronert wrote in a research note on Monday.
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