BNY’s Head of Markets Macro Strategy Bob Savage argues that Q1 US equities will be driven more by forward guidance than reported earnings, with consensus S&P 500 earnings growth around 13% and wide dispersion in forecasts. AI monetization, margin expansion and tax relief are key supports, while Dollar strength, energy shocks and sector rotations are likely to shape investor reactions to EPS surprises.

Guidance, AI and margins in focus

"Q1 reporting will focus more on outlooks than results. The consensus earnings growth is 13%, but the forecast, varying from 9% to 19%, is wide. Early corporate guidance has also been notable, with 59 companies issuing positive guidance – the most since 2022."

"The S&P 500’s 12m-forward P/E has dropped to 19.8 from 22 since January 1, a notable compression given the index is down just 0.6% on the year. The trailing 12m P/E of 26.2 may be the more instructive reference. Investors could rotate from value to growth, with beats rewarded more asymmetrically than misses in the weeks ahead."

"Three notable divergent moves in holdings relative to earnings expectations will be key to how investors react to EPS beats. iFlow data show that Technology, Communications Services and Financials have all seen a significant shift down in holdings – a rotation that began before the Middle East conflict and was clearly part of the broader 2026 shift away from dominant growth themes."

"Real Estate, Materials and Health Care look more dependent on underlying earnings."

"The earnings season is likely to be defined less by reported results and more by forward guidance, particularly as macro uncertainty and sector rotations intensify. Equity markets appear increasingly sensitive to outlook revisions, with asymmetric reactions favoring companies that can demonstrate durable growth amid volatility. AI-driven efficiency gains and margin expansion remain key structural tailwinds, supporting an equity-biased stance, particularly in sectors with strong operating leverage."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)