Wall Street optimistic about US stock earnings outlook, Goldman Sachs warns of excessive concentration in rising stocks

The S&P 500 Index has reached an all-time high, but the structural divergence behind earnings revisions has raised concerns.

Strategists at major Wall Street banks generally hold an optimistic outlook on the earnings prospects of US companies. The strong start to the first-quarter earnings season, coupled with a renewed enthusiasm for AI investments, has boosted market confidence.

Morgan Stanley strategist Michael Wilson stated, "Despite geopolitical risks, the momentum of earnings recovery remains intact, with positive operating leverage as the core driving force."

However, Goldman Sachs pointed out that the recent earnings upgrades and stock market gains are highly concentrated in a handful of stocks, with market breadth having dropped to the lowest levels seen in decades.

Currently, bank stocks have delivered outstanding results ahead of the curve. JPMorgan Chase, Bank of America, Citigroup, and Goldman Sachs have all recorded record-high equities trading revenue. According to Bloomberg data, around 81% of large-cap stocks have reported earnings per share that beat analysts' expectations.

Morgan Stanley's Wilson noted that S&P 500 earnings per share growth continues to show improvement. Revenue growth is outpacing cost increases, and positive operating leverage is providing robust support for corporate profits.

JPMorgan strategist Mislav Matejka remarked that earnings forecasts have been raised across major regions. "Despite renewed geopolitical tensions and persistently high oil prices that could pressure earnings, Brent crude holding around $100 remains consistent with further earnings upside."

By sector, JPMorgan is optimistic about semiconductors, mining, and industrials, while the consumer discretionary sector may face headwinds.

Goldman's Ben Snider pointed out that, although consensus earnings expectations for the S&P 500 have been raised by about 4% for both this year and next compared to January, the energy and information technology sectors have contributed nearly all of this increase.

More notably, just two companies—Micron Technology and Exxon Mobil—together have accounted for over 60% of the upward revisions to S&P 500 consensus earnings per share forecasts for 2026 since the onset of recent conflicts.

"The vast majority of recent upward revisions to S&P 500 earnings expectations have been driven by only a handful of stocks," Snider stated.

Meanwhile, Goldman's preferred measure of market breadth has fallen to its lowest point in decades, second only to the dot-com bubble and the middle of 2023, indicating that both the rally and the earnings upgrades are not broad-based.

The main issue currently facing the market is whether, as the first-quarter earnings season peaks, the upward revisions to earnings and price gains can extend beyond a few stocks to a broader range of index constituents.

The reopening progress of the Strait of Hormuz is crucial for cyclical sectors, as these stocks are more closely linked to overall economic conditions.

Goldman Sachs believes that the stock market is currently skewed slightly to the upside. Downside risks stem from weakening consumer demand and war-driven increases in input costs, while upside drivers include sustained gains in AI investment and productivity.