Five Takeaways From First Quarter Earnings Season

by Larry Adam of Raymond James, 5/11/26

Key takeaways:

  • S&P 500 earnings have seen the strongest upward revision to EPS in four years
  • Mega-cap tech has been the standout through 1Q earnings
  • Despite headwinds from rising energy costs, margins hit a record in 1Q

With 82% of market cap having reported, the S&P 500 is on track for 27% year-over-year earnings per share (EPS) growth, the strongest since 4Q21. More than 84% have beaten earnings estimates − the most since 1Q21 − while earnings revisions are up 12%, the fastest pace in four years. That said, here are five other takeaways from 1Q26 earnings season so far:

Consumer remains on solid footing

While rising gas prices have weighed on consumer sentiment − the University of Michigan Sentiment Survey fell to a record low in April − real‑time indicators suggest consumer spending remains healthy. This view was echoed by management commentary during 1Q26 earnings calls. Banks pointed to continued consumer resilience with limited deterioration in credit quality, while credit card companies reported solid spending growth across all income cohorts, with some noting recent acceleration. At the industry level, airlines are seeing strong forward booking demand and select restaurants this week highlighted healthy overall spending. While elevated gas prices remain a near‑term headwind, solid consumer demand should continue to support growth.

Mega-cap a standout

Against a backdrop of strong earnings growth, mega‑cap tech once again stood out. MAGMAN* is on track to deliver 59% year-over-year EPS growth, versus just 12% for the rest of the index, marking a 13th straight quarter of earnings outperformance. Mega‑cap tech exceeded estimates by ~35% on average − the strongest beat since 1Q21 − while margins expanded to a record 34%, more than three times the broader index. While one‑time income tied to private‑investment revaluations (e.g., Anthropic) lifted results, underlying profitability remains strong. Excluding these items, EPS growth still would have been a healthy 18%. With investment demand continuing to outpace supply, 2026 hyperscaler capex remains robust − revised 12% higher in Q1 to ~$720 billion − while valuations remain below their five‑year average. These fundamentals support our overweight to mega‑cap tech, reinforcing that recent outperformance is justified.

Capital expenditure is booming

We have consistently highlighted the positive impact of the One Big Beautiful Bill on consumers through higher tax refunds. On the business side, the R&D expensing provision, which allows immediate expensing of capital investments, has driven a notable surge in corporate capital expenditures. S&P 500 capex is on pace to rise 32% year over year, the fastest growth since 2007. While hyperscaler-led AI investment remains the primary driver, capital spending across the rest of the index is also gaining momentum, with ex-hyperscaler capex projected to increase a healthy 16% year over year. Notably, seven out of 11 sectors are expected to deliver more than 10% year-over-year capex growth in 2026. With nonresidential investment contributing more to 1Q GDP growth than consumer spending, the current capex boom should provide a meaningful tailwind to both GDP and earnings growth moving forward.

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