"Iran War? Earnings Could Rise 19%" U.S. Companies See Bright Q1 Outlook Thanks to Tax Policies

Despite the ongoing Iran war, there are projections that U.S. companies will see improved earnings in the first quarter. Analysts point to the weaker dollar, as well as the Trump Administration's tax cuts and spending policies, as factors that will support corporate earnings.

AFP Yonhap News

According to FactSet on April 13 (local time), companies included in the S&P 500 are expected to post a 12.6% year-on-year earnings growth rate for the first quarter of this year.

Although oil prices have surged since the outbreak of the conflict, corporate earnings forecasts have actually risen. Just before the war, in February, the expected growth rate was 11.4%. According to FactSet estimates, earnings growth could reach up to 19%.

According to the Financial Times (FT), investors expect that upward revisions in first-quarter earnings forecasts could help sustain the stock market's rally. Recently, the S&P 500 has shown continued strength following the two-week ceasefire between the U.S. and Iran, nearly recovering to pre-war levels.

Dan Hanbury, equity portfolio manager at UK-based global asset manager Ninety One, stated, "Although macroeconomic uncertainty remains high, the momentum in corporate earnings growth is very robust. Even if oil prices stay elevated, as long as government spending continues and there is no recession, the trend of earnings growth can remain strong."

U.S. President Donald Trump's so-called 'One Big Beautiful Bill Act' is expected to boost this year’s economic growth and support returns on U.S. assets. The bill provides tax incentives to companies investing in machinery and factory equipment, and applies tax cuts to many American workers.

The weaker dollar is also working as a positive factor. Although the dollar has recouped some losses against major currencies since the outbreak of the war, it remains at a lower level compared to early last year. This benefits sectors such as energy, materials, and technology that generate sales overseas in foreign currencies.

Parag Tathé, an analyst at Deutsche Bank, said that first-quarter earnings will be "exceptionally strong."

However, differentiation is expected by sector. As higher oil prices begin to be reflected in corporate earnings, forecasts for technology and energy sectors are being revised upward. In contrast, sectors sensitive to energy prices, such as industrials, are being revised downward.

Revenues for energy companies are expected to increase due to the sharp rise in oil and natural gas prices. However, this is not expected to translate into significant profit growth, as the sector was expected to see a steep decline in profits before the war.

Experts unanimously agree that the direction of S&P 500 earnings depends on large technology companies. Over the past decade, these companies have been the primary engine driving Wall Street’s strong bull run. They are also expected to account for the majority of S&P 500 earnings growth in the first quarter of this year.

Some analysts note that, as technology stocks have underperformed recently, their valuations have become more attractive. The so-called 'Magnificent 7 (M7)' stocks have fallen by more than 6% so far this year. According to data from Goldman Sachs, the current price-to-earnings ratio (PER) for technology stocks is lower than that of sectors such as industrials and consumer staples.

Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, explained that the relative underperformance of technology stocks has led to a "very significant decline" in valuations, and some stocks "are starting to look attractive and inexpensive again."

Helen Jewell, Chief Investment Officer (CIO) of International Fundamental Equities at BlackRock, also said that the recent market correction has created buying opportunities in stocks benefiting from 'structural tailwinds' such as artificial intelligence (AI).

However, some market segments sensitive to interest rates or consumer spending are now at risk of an 'earnings shock' due to the Iran war. CIO Jewell pointed out that cyclical stocks, which are affected by inflation and rising interest rates, are likely to be the area where unexpected disappointments emerge this earnings season.

This content was produced with the assistance of AI translation services.