MW An earnings boom is around the corner, and it could blindside the stock-market bears

By Barbara Kollmeyer

Wall Street expects earnings to reach a four-year high - too conservative, says Deutsche Bank

Not-so-fearless investors are about to get an earnings surprise, says Deutsche Bank.

Retail investors have been "skipping the dips, selling into rallies, and positioning more defensively," according to JPMorgan.

The bank noted such activity was even seen during Wednesday's rally, which that cohort sold into - a marked departure from their behavior last year. That's as institutional investors have also backed away from U.S. stocks this year, against a backdrop of a volatile Middle East conflict and worries over AI disruption.

But those bearish attitudes may be about to meet their match, with first-quarter earnings growth expected to come in at a four-year high, according to Deutsche Bank strategists led by Binky Chadha.

Deutsche expects S&P 500 SPX first-quarter annual earnings growth of 19%, which would beat the already "high bar" of 16.2% forecast by Wall Street analysts. Goldman Sachs $(GS)$ will kick off the reporting season on Monday.

"Equity investor positioning meanwhile is significantly underweight and in line with an imminent collapse in earnings growth. Positioning is notably low for sectors in the market crosshairs currently, like financials and tech, especially software," Chadha and his team told clients in a note on Wednesday.

They said that 16% growth represents a level "rarely expected at the start of any earnings season," but justified by a favorable macro environment, rising cyclical growth drivers and a weak dollar tailwind.

That would be the highest quarterly growth in four years, from 13.4% in the fourth quarter and an 8.5% to 14% range in the past two years, according to the bank. In the last two decades, the consensus has been this strong only three times: the recovery from deep slumps from the 2008-09 global financial crisis, the rebound from the COVID-19 pandemic and the boost from the 2018 corporate tax cuts.

Deutsche Bank said earnings growth would broaden out across sectors, with 10 of 11 in positive territory, led by megacap growth and tech. That group, which has seen growth above 24% in every quarter since the third quarter of 2023, should see earnings growth jump to 35.7% from 27.5% in the fourth quarter, led by semiconductor manufacturers.

They also predicted financials shining, from growth of around 11% in the lower half of the range from the prior quarter to nearly 20%. Industrials, driven by continued AI demand and some manufacturing pickup, are expected to bounce from 2.8% to 7.9%. Consumer cyclicals could see some modest improvement, from a contraction of 7.5% to a drop of just 1.6%.

As for the tailwinds, the strategists said a 6.8% annual drop for the dollar in the first quarter was the biggest in around five years, and probably boosted S&P 500 earnings growth by a "sizable" 4.1 percentage points. Energy, materials, megacap growth stocks and tech and industrials would be the biggest beneficiaries of that.

Higher oil prices may only give energy earnings a modest boost in the quarter, given they are only up by 2% annually on a quarterly average basis. "If oil prices stay elevated, they will be a significant boost to energy earnings in the coming quarter," the strategists said.

Their chart showed where investors are positioned ahead of the start of earnings season:

"Equity positioning has historically been well correlated with earnings growth and is in line with the latter turning negative imminently, a farcry from the strong growth we expect in Q1," said Deutsche Bank.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) were slipping following Wednesday's rally, as oil prices (CL.1) (BRN00) recouped some of their sharp losses.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6616.85    1.35%   -2.43%  -3.34%  32.79% 
   Nasdaq Composite                                                     22,017.85  1.98%   -2.99%  -5.27%  44.21% 
   10-year Treasury                                                     4.239      -8.30   0.80    6.70    -11.70 
   Gold                                                                 4831.6     0.98%   -6.80%  11.53%  55.87% 
   Oil                                                                  92.35      -6.60%  4.46%   60.86%  47.24% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Iran and U.S. negotiators are due to meet in Islamabad, Pakistan, late Thursday, as a fragile cease-fire is put on the line by Israel's attacks on Lebanon. President Donald Trump said late Wednesday that U.S. troops will remain in place in the region until the "REAL AGREEMENT" is in place.

Weekly jobless claims and the Fed's preferred inflation gauge - the personal-consumption expenditures index for February - and the second revision to fourth-quarter GDP are all due at 8:30 a.m. Wholesale inventories are due at 10 a.m.

A $22 billion auction of 30-year bonds is ahead.

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The chart

The chart from Ned Davis Research showed how commodity bull markets have been a boost for Brazil, represented by the iShares MSCI Brazil ETF EWZ. Pat Tschosik, chief thematic strategist, and analyst Philippe Mouls have turned bullish on that ETF, forecasting 15% relative outperformance by the end of 2026, and higher if a commodity bull market sticks. They cited optimism about an economic rebound, compelling valuations, broad commodity exposure, Brazil's rare-earth reserves - the world's second-biggest - and deeper trade ties with China. Ned Davis said markets are "only in the middle innings of a commodity supercycle bull market," solidifying that view on Brazil. It's worth noting that EWZ is heavily weighted in companies Vale Energy $(VLO)$ and Petróleo Brasileiro $(PBR)$.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   MU      Micron 
   NIO     NIO 
   AMZN    Amazon 
   TSM     Taiwan Semiconductor Manufacturing 
   INTC    Intel 
   META    Meta 
   PLTR    Palantir 

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BEYOND THE NEWS

MarketWatch Picks: I'm 74 with 5 credit cards and $18K in debt. My husband got promoted, but we keep finances separate. Can I be debt-free before I die?

-Barbara Kollmeyer

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April 09, 2026 07:01 ET (11:01 GMT)

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