With all of the geopolitical uncertainty impacting the market in the past two months, it is reasonable for investors to be on edge. However, within that backdrop, the stock market has entered earnings season which is traditionally the major focus of investors.
As a refresher, company earnings have historically been the biggest driver of stock prices over the long-term whereas newsworthy events like the geopolitical events currently impacting the market have typically had short-term implications. Therefore, earnings season is the time when investors are able to gauge the impact of larger economic or global events on company profits. This makes the current earnings season especially important as it gives some insight into how current geopolitical events will impact the season.
To be entirely accurate, the war with Iran started part way through the recent earnings quarter so the earnings numbers may not entirely reflect the change in market dynamics. However, the earnings season has started very strong with the S&P 500 expected to earn $70.10 for the first quarter with roughly 50% of companies already reporting. That represents a 10.35% increase from the previous quarter and a 21.51% increase from the same quarter one year ago.
If these numbers hold, it would be the third straight quarter that the S&P 500 posted earnings growth of more than 20%. Naturally, this strong earnings growth has been reflected in stock prices which explains the strong stock market performance despite the continued uncertainty in the geopolitical landscape.