21 MAY 2026
The optimism surrounding 2026 earnings forecasts stems from the fact that economic activity is holding up.
Before the Gulf conflict began, the Chinese economy was showing signs of life and US GDP was seeing renewed upward momentum.
Whilst the threat of a sustained supply shock lingers, it appears the Strait of Hormuz blockage is yet to derail global growth.
This chart uses the new orders component of the ISM survey (red line) as a lead indicator for broader economic activity and, by extension, corporate profits.
It has been picking up in recent months despite the geopolitical turmoil, suggesting EPS growth (blue line) should soon follow suit.
This correlation would be tested in the face of a sustained rise in oil prices or renewed uncertainty.
But, for now, the underlying message is that macro fundamentals are stronger than feared, which helps to keep the earnings story intact.
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