Market Update 11th May 2026

Sticking to the facts

We are coming towards the end of first quarter earnings season. It has been a strong showing, to say the least. At the time of typing, over the first three months of the year, earnings growth in the USA has been 27.7%. With the vast majority of numbers having now been released, that will be something like the final figure. So this quarter will be the highest rate of growth since the last 3 months of 2021. This performance is arguably more impressive because 2021’s comparison is flattered by the fact we were coming out of the Covid depths. Projections for the year as a whole now have an estimated annual growth rate of 22.1%. If you’re asking yourself how markets can keep climbing when there is war going on, interest rates are looking like rising again and inflation is rearing its ugly head again, the answer is in these growth numbers. Over time, it is earnings, not anything else, which drive markets forward. That sounds silly, but it often gets lost in the noise.

So where is this strong earnings growth coming from? It’s tech, right? Well yes – the tech sector is a major contributor, as AI remains an exciting growth driver. But it’s not the only moving part. 84% of companies have reported EPS above consensus, seven of 11 sectors have generated double digit earnings growth, and all have delivered increases in revenue. The ‘Magnificent seven’ stocks have delivered stonking growth again, but the other 493 companies in the top 500 are generally healthy as well.

Closer to home, European companies look like hitting around 9% growth this quarter, over twice the expected rate prior to the first results coming out. Those European numbers include a good start from our home market, and forecasters expect UK large cap earnings in 2026 to be 18.5% higher than in 2025. This means that, contrary to the narrative that I have heard trotted out again and again, there is something to be excited about in the UK.

Sure, there is a boost from the big oil majors. BP’s rule of thumb says for every $1 the oil price rises or falls, there is a corresponding impact of $340m on its pre-tax profit, so with oil around $40 per barrel higher than it was on 1 Jan, there has been a significant shift there. Shell obviously has a similar tailwind. But even if we exclude the contribution of those two, the other 98 of the UK’s largest businesses are still expected to grow by double digit percentages, and have seen estimates for 2026 increase over since the start of the year. The rather neat hedge here is that should oil prices reverse, energy, freight and many other energy-relevant costs for the rest of the market will recede. That’s good for profits for the majority.

Of course we should not count any chickens. Until the war broke out, investors were expecting growth fuelling rate cuts and inflation had faded as the topic du jour. Today, rates look likely to rise, and we are starting to see signs that inflation is picking back up. In addition, the numbers we’ve had in Q1 have on a few occasions come with cautionary guidance for Q2 and beyond. The latest job projections are also a little concerning, and there is obviously political instability too.

But we should also remember that growth in the face of adversity is not a new theme for stock markets. Anyone who moved out of the market in the last 10 years over anything from Brexit to the war in Iran would have needed to return in a timely manner in order to participate in subsequent rallies. Given this track record, we should not be surprised that markets continue to rise when there are challenges around. We should not expect them to either, and of course the next issues could be more problematic – but you get the point. To equate macro instability with nailed on market difficulties is not sensible. Innovation and corporate progress are usually stronger than most macro problems.

George Salmon – Senior Research Analyst

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