Some investors were puzzled by the sharp drop in oil prices a few weeks ago based on a few – but at times contradictory – social media posts from President Donald Trump (which in any event were then often contradicted by the Iranians). That scepticism seemed warranted when oil prices subsequently jumped by 20% as tensions rose again.
The initial decline in oil prices was well received by equity markets globally, but the later spike has largely been shrugged off by the US and by tech-heavy indices. Value indices such as Europe, Japan and emerging markets excluding technology, however, fell back.
The source of the divergence is twofold. Technology remains a sustainable, positive factor for earnings growth and for equity prices. Emerging markets tech stocks have rebounded 24% from their post-war trough and are now up 30% year to date.
The US has certainly benefited from the renewed faith in technology shares, particularly as US software stocks have begun to recover from February’s disruption (China is still lagging). But the rebound has been broader based than just technology. This is partly due to encouraging economic data that contrasts with what we have seen in Europe. The most recent flash services sector Purchasing Managers’ Indices showed the rate of expansion in the US accelerating while in Germany and France they moved further into contractionary territory.
Broad-based positive surprises
First quarter US GDP offered further respite after the worrying figures from the end of 2025. The US economy expanded by 2% (seasonally adjusted annual rate), driven meaningfully by business investment, which contributed 1.4 percentage points to the total. Artificial intelligence-linked industries were the main driver, while non-tech manufacturing investment continued to decline. Consumer demand was still on the low side, but it was good enough, especially when the jump in petrol prices threatened to drive it lower.
This environment is manifesting itself in a good US earnings season. With over half of the companies in the S&P 500 reporting, earnings per share (EPS) have risen nearly 20% versus the same quarter a year ago. Technology has certainly done well, but there has been good growth across all sectors: excluding the tech sector, EPS is still up 18%. This sector breadth can also be seen in the positive figures for the Russell Value and Russell 2000 indices. Earnings surprises are running well above average at 10.5% compared to a typical range of 3%-4%.
Contrast these figures with Europe, where headline EPS growth looks reasonable at 8.8%, but half of that is from energy (there’s very little contribution from the energy sector in the US). Earnings surprises and revenue growth are also far lower.
Aside from the actual results, US corporate guidance is strong. Typically, around 22% of the guidance companies provide when they report is positive. Over the last three months, it has been nearly 30%, suggesting that despite the uncertainties executives face, they are relatively optimistic about the outlook.
The Iran war remains the primary threat to a sustained equity market rally, but at least in the US, underlying economic strength, and hence prospects for potential earnings growth, remain good.
Performance data/data sources: Bloomberg, FactSet, BNP Paribas AM, as of 30 April 2026, unless otherwise stated). Past performance should not be seen as a guide to future returns.
