Corporate America Earnings Beat Back Wall Street’s Wall of Worry

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The Russell 2000 Index is up 13% so far in 2026 — well ahead of the S&P 500’s 5.6% gain. 

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Small caps “do most of their business domestically and are therefore benefiting disproportionately from the strong US economic environment,” said Mike Dickson, head of research at Horizon Investments.

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Bank Boom

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Big US banks notched the most profitable quarter ever with executives projecting confidence about the US economy and expectations for record lending hauls. The KBW Bank Index climbed 10% in April, the biggest monthly gain since November 2024.

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“This industry is ripe to capitalize from AI,” according to Barclays analyst Jason Goldberg, who expects increasing profits from banks, including Bank of America Corp. and KeyCorp.

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At Wells Fargo & Co. Chief Executive Officer Charlie Scharf told investors that the “financial health of consumers and businesses remains strong.” Consumers are spending more than last year, he said, and not just on gas. 

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Still, Bloomberg Intelligence senior analyst Herman Chan was cautious about the outlook for net interest margins for the rest of the year, especially if the Federal Reserve holds off on lowering interest rates. “Banks are seeing decent lending activity, but no rate cuts means tougher deposit competition to fund the loan growth.”

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JPMorgan Chase & Co.’s Jamie Dimon also struck a note of caution, warning that a credit market downturn could be worse than expected.

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Oil Shock 

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Other concerns remain. Oil price swings are making guidance difficult and rattling energy producers and oil-dependent companies. The energy sector tumbled in April after leading in March. 

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More than 70% of S&P companies reporting in April mentioned “Iran” or “oil,” twice the share mentioning “tariffs,” according to BofA. Measures of corporate sentiment show a “hint of caution” creeping into earnings reports, even as fundamentals held, the bank’s strategists said.

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Exxon Mobil Corp. Chief Financial Officer Neil Hansen said that “part of the challenge with giving guidance is, as you would imagine, we really don’t know how long the Strait of Hormuz will remain closed.” The oil giant topped expectations as crude prices soared, as did Chevron Corp. Shares in both oil and gas producers are up over 25% so far this year.

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The stalemate in the Middle East has given financial managers across industries more leeway to hold off on lowering forecasts in recent weeks, according to Steve Sosnick, chief strategist at Interactive Brokers.

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“If you’re willing to separate your concerns about the global situation, by all means, we should be rallying,” Sosnick said.

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‘All Clear’

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Despite oil’s swings, Americans keep spending, juicing results for consumer-facing companies. Consumer discretionary stocks climbed 12% in April, outperforming the broader benchmark. It’s an about face from March when spiking gas prices fanned inflation and recession fears, weighing on the group.

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“If you were waiting for the all clear, it’s too late,” said Empower’s Norton.

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Amazon’s 27% rally in April helped the sector’s advance, but strength extended beyond the mega-cap stock with three-quarters of the group’s members climbing. Starbucks Corp. rallied 18% in April, while homebuilder DR Horton Inc. climbed 12%. Hotel owners Hilton Worldwide Holdings Inc. and Wynn Resorts Ltd. also advanced. 

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There are still major names due to report — including McDonald’s Corp., Home Depot Inc. and TJX Cos. 

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The sector has so far painted a better picture of US consumer spending than Wall Street had expected, while recent macroeconomic data, including for the labor market, are reinforcing investors’ newfound optimism, according to Norton. In March, when the Iran war caused oil prices to spike, personal spending climbed 0.9%.

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“There’s greater strength than we realized for the US consumer,” she said. The question is if that strength — and earnings momentum — will persist if oil volatility continues or rate cuts are delayed.

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