Is the US stock market rally just a "local boom"? Goldman Sachs says that 75% of earnings upward revisions come from three companies

Wall Street analysts have recently raised their earnings expectations for the S&P 500 index, which is typically seen as a bullish signal for the stock market. However, Goldman Sachs has noted that the latest improvement in earnings expectations is actually being driven by a small number of individual stocks, rather than broad-based corporate earnings recovery.

After a period of intense volatility triggered by the Iran war, the S&P 500 has now returned to pre-war levels and is near its historical highs. One of the major factors driving US equities to fresh records is the market's upward revision of first-quarter corporate earnings forecasts, which has, to some extent, helped investors temporarily ignore the shocks caused by the war.

However, in a report released last Friday, Goldman Sachs pointed out that just three companies accounted for 75% of the positive earnings revisions within the entire S&P 500: Micron, Exxon, and Chevron.

(Image source: Goldman Sachs, Business Insider)

Goldman Sachs analysts wrote in the report: "The rise in S&P 500 earnings expectations in market consensus is mainly driven by a small number of locally strong sectors."

Structurally, the technology sector remains one of the major sources boosting earnings revisions, mainly thanks to the continued support from demand related to artificial intelligence (AI). However, Goldman Sachs also points out that the improvement within the technology sector itself is not balanced; the real driver of earnings upgrades is concentrated in hardware, especially among storage chip stocks.

Of note, Micron alone contributed 51% of the upward earnings revision for the S&P 500 index, becoming the central driving force in this round of improvement. SanDisk also ranks among the top contributors, though it only accounts for 3% of the overall revision; chip manufacturer Broadcom contributed 10%.

Goldman Sachs further noted that energy and technology have contributed nearly all of the positive earnings revisions for the S&P 500, while on a broader level, the earnings outlook for the median S&P 500 company for 2026 has hardly changed.

(Image source: Goldman Sachs, Business Insider)

The report states: "The recent upward revision in overall S&P 500 earnings expectations has been almost entirely driven by the energy and technology sectors. Of the 11 sectors, eight saw no upward adjustment in earnings per share expectations."

Analysts explained that earnings estimates for the energy sector were raised mainly due to oil price movements. Following the outbreak of the Iran war, geopolitical tensions pushed oil prices sharply higher, thereby improving energy firms’ earnings outlook. Since the onset of the Iran conflict, six of the top ten contributors to the S&P 500 index's positive earnings revisions have come from the energy sector.

These companies include Exxon, Chevron, ConocoPhillips, Valero Energy, EOG Resources, and Occidental Petroleum. Collectively, these companies accounted for more than a third of the overall earnings revisions.

The energy sector has clearly benefited from the latest Middle East conflict, as soaring oil prices triggered by the war have lifted market expectations for the sector's profitability. Market consensus expects energy producers to report stronger performance during the war as a result of higher oil prices.

However, despite the improvement in earnings expectations, energy stocks themselves have mostly peaked and retreated in recent weeks. This suggests that investors may already be pricing in a potential decline in oil prices ahead of time and are beginning to reposition for the post-war market environment.