I hope you all enjoyed your Memorial Day weekend. Asheville got some much-needed rain over the weekend, so it didn’t really feel like the start to summer.

With the bulk of first quarter earnings season behind us, I want to share what the data are telling us. The results have been notably strong—both in absolute terms and relative to expectations. And while much of the market narrative continues to focus on the so-called “Magnificent Seven” (the large-cap technology companies like Nvidia, Alphabet, Apple, Microsoft, Amazon, Meta, and Tesla), I think the more encouraging story is what we’re seeing beneath the surface.

According to FactSet, the gold standard for earnings data, the S&P 500 is on track to deliver approximately 27% year-over-year earnings growth for Q1 2026. If this holds, it represents the strongest growth since Q4 2021 and a meaningful acceleration from expectations at the end of the quarter, when growth was projected closer to 13%. What makes this particularly encouraging is not just the growth rate, but the breadth and quality of results. Roughly 84% of companies have exceeded earnings expectations, well above both the five-year average of 78% and the ten-year average of 76%. In aggregate, earnings have come in approximately 18–21% above estimates, marking one of the largest positive surprise factors in several years.

Revenue results have also been solid, with more than 80% of companies beating top-line expectations. This combination—strong growth plus widespread beats—is precisely what has been driving the market’s strength so far this year.

Now, about those large-cap tech companies. They’re delivering approximately 23% earnings growth in Q1, and yes, they’ve been significant drivers of overall index performance. But there are two important nuances I want to underscore. First, some of the gains remain concentrated—Nvidia is contributing disproportionately to growth within the group. However, the rest of the Magnificent Seven are still generating solid results, and more importantly, the remaining 493 companies in the S&P 500 are expected to deliver approximately 10% growth, which is healthy by historical standards. This is not a narrow, mega-cap story. The fact that the broader index is still generating double-digit growth tells us something important about underlying economic resilience.

One of the most encouraging aspects of this earnings season is the breadth of sector participation. Seven of the eleven S&P 500 sectors are delivering double-digit earnings growth. Communication Services is leading with approximately 53% growth, followed by Information Technology at roughly 50% and Consumer Discretionary at about 39%. These sectors have been primary beneficiaries of continued digital transformation, artificial intelligence investment, and resilient consumer demand. But it doesn’t stop there. Other sectors are contributing positively as well, with energy benefiting from rising commodity prices during the quarter. Leadership remains anchored in technology and communication services, but when the gains are this broad-based, it’s typically a healthier market dynamic than narrow leadership alone.

That said, the backdrop is becoming more complex as we look ahead. Late in Q1 and into Q2, conditions shifted meaningfully with escalating geopolitical tensions in the Middle East. Recent reporting highlights that tensions involving Iran and disruptions to key shipping routes have contributed to higher oil prices and increased volatility in global energy markets. Analysts estimate that millions of barrels per day of supply have been impacted, tightening global inventories and shifting the oil market from surplus toward deficit conditions.

Looking ahead, major institutions including Goldman Sachs and JPMorgan have suggested that oil prices could average in the $90–$100 per barrel range in Q2, with upside risk if supply constraints persist. More recent reporting indicates that these geopolitical tensions have already begun to influence inflation expectations and interest rates as markets price in the economic impact of elevated energy costs.

From an earnings perspective, this tightening in energy markets presents a two-sided story. On one hand, higher realized prices typically translate directly into stronger revenues and cash flows for energy producers, which could support continued earnings strength in the Energy sector. On the other hand, for many industries—particularly industrials, transportation, and consumer-facing businesses—higher input and fuel costs can compress margins if those costs cannot be fully passed through to customers. At the macro level, global institutions have already begun to revise growth expectations modestly lower, noting that sustained energy price increases can weigh on economic activity and corporate profitability.

Of course, much of what happens in Q2 and beyond will depend on how these geopolitical developments evolve. Energy markets are particularly sensitive to changes in supply expectations, and even partial normalization of flows could reduce the current risk premium embedded in prices.

Here’s what I’m taking from all of this: Earnings growth is real, and it’s broadening. While mega-cap technology companies remain important, the broader S&P 500 is still generating solid growth. The magnitude of earnings beats—well above historical averages—has been a critical driver of market strength, and this reflects both strong execution and, in many cases, conservative expectations. Perhaps most importantly, we’re seeing leadership expand beyond just a handful of mega-cap names, with participation broadening across sectors and company sizes. That’s typically a healthier market dynamic.

In this environment, the strategy we’ve built for your portfolio continues to serve you well. We own high-quality companies that pay dividends and repurchase their own shares—businesses that reward shareholders even in more complex market conditions. These are the kinds of companies that tend to hold up better during periods of uncertainty and market rotation. They deliver real earnings growth, maintain pricing power, and are managed by disciplined capital allocators.

I’ll be monitoring the geopolitical situation and its potential impact on earnings closely. If anything shifts that could affect your portfolio, I’ll be in touch. Please let me know if you would like to chat.