The S&P 500 closed at a record 7,234 on Friday as first-quarter earnings season produced the strongest beats versus estimates since 2021. With 68% of index constituents having reported, FactSet data shows 78% have exceeded consensus earnings forecasts, topping expectations by an aggregate 8.1% — nearly double the 5-year average beat rate of 4.3%. The blended year-over-year earnings growth rate now stands at 11.4%, up from the 7.6% expected at quarter-end.
The rally lifts the index 4.9% year-to-date and more than fully erases losses from February's Iran-war correction. The Nasdaq Composite finished at 22,518, up 2.1% on the day, while the small-cap Russell 2000 climbed 2.6% to 2,487 as the rotation broadened beyond mega-cap tech.
Banks, Industrials Lead the Beat
Financials are tracking 16.8% year-over-year earnings growth, the strongest of any sector, with JPMorgan, Bank of America, Citigroup, and Goldman Sachs all posting record quarterly net interest income. Industrials are up 13.2% on rebuilding defense and energy-infrastructure demand tied to the Iran crisis, with Raytheon, Lockheed Martin, and Caterpillar all raising full-year guidance.
Technology earnings grew 9.8%, below the Q4 pace of 13.1% but still comfortably above consensus. Nvidia, Microsoft, and Meta report next week in the most consequential stretch of earnings season. Analysts at Morgan Stanley and Bank of America have raised full-year 2026 S&P 500 EPS forecasts to $278 and $282 respectively, from prior estimates near $265.
Margin Expansion Surprises to the Upside
Operating margins have expanded to 12.4% in aggregate, a 60-basis-point improvement from Q4 and 110 basis points higher than a year earlier. The resilience comes despite energy costs running 28% higher year-over-year, with companies citing successful pricing actions, AI-driven productivity gains, and lower selling and administrative expenses as corporate America settles into a more disciplined post-pandemic operating model.
Forward guidance has been cautiously constructive. FactSet tallies 142 S&P 500 companies raising full-year 2026 guidance versus only 58 cutting — the most positive revision ratio since Q3 2021. Jim Paulsen of Paulsen Perspectives told clients that "the fundamental picture is considerably stronger than the narrative suggests, and the market is now catching up to the data."