The war takes a toll on growth; but more on economic than earnings
The ongoing geopolitical tensions in the Middle East are significantly impacting global economic growth and forcing a shift in market outlook. While equities have seen a decline, the resilience in S&P earnings—particularly in sectors like energy and tech—suggests a nuanced response to changing conditions, with the BofA commentary highlighting how higher energy prices can both create challenges and opportunities.
What the desk is arguing
The recent turmoil in the Middle East has started to reshape the global macroeconomic landscape, primarily through rising energy prices that are squeezing growth estimates. BofA's research indicates that while 2026 GDP projections are being cut by 0.3-0.5 percentage points, U.S. corporate earnings remain surprisingly robust, partly buoyed by strength in the energy and technology sectors.
Supporting this view, BofA's Savita Subramanian noted that despite the equity market selloff, S&P earnings have shown resilience thanks to positive revisions in earnings expectations. This suggests that the declines in equities may not reflect a broader corporate weakness but rather a recalibration of market sentiment in response to heightened geopolitical risks. The underlying message is that while growth may be under pressure, earnings could navigate these headwinds more effectively than previously anticipated.
Where it sits in our coverage
In contrast to BofA's outlook, our consensus target for the S&P 500 aligns with a more cautious assessment, with a target of 1.075 for the index. This reflects a firmer stance regarding growth risks, diverging from BofA's relatively optimistic earnings positioning. The firm spread we observe indicates a host of firms maintaining a wait-and-see approach as global financial conditions tighten.
Key firms in our coverage, such as Barclays and JPMorgan, share insights that require watching performance amidst these upheavals. Their specific targets as of December 2026 are as follows: - **Barclays**: 1.09 - **JPMorgan**: 1.10 - **Goldman Sachs**: 1.08
How other firms see it
The responses from other leading firms indicate a mixture of caution and selective optimism in regard to the impact of energy price surges on earnings. **Goldman Sachs** supports a view aligned with BofA on earnings resilience but expresses caution regarding growth outlooks, while **Barclays** has signaled a more cautious stance that underlines volatility ahead.
- **Goldman Sachs**: Aligned on earnings but cautious on growth outlook - **Barclays**: Cautious stance on market volatility - **JPMorgan**: Generally aligned with a focus on sectors likely to benefit from energy price fluctuations
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Geopolitical tensions are reshaping macroeconomic outlooks.
- 02S&P earnings remain resilient despite equity selloff.
- 03Market recalibration may create opportunities in select sectors.
Market implications
The resilience of corporate earnings amidst rising energy prices could provide a buffer for equity markets, suggesting that sectors like energy and tech may outperform in the near-term as investors recalibrate their expectations for growth. However, sustained higher energy prices could still pose a threat to consumer spending and broader economic performance.
Risks to this view
Risks to this outlook include a potential escalation in geopolitical tensions that could exacerbate supply chain disruptions or lead to more significant inflationary pressures. Additionally, if higher energy prices do not support earnings as anticipated, this could lead to a more severe market correction.
Equities drop but S&P earnings resilient for now Global markets are recalibrating as higher energy prices shift the macro outlook and force a reassessment of growth and inflation. Our commodity strategy team raised forecasts for oil prices and other commodities due to Middle East supply challenges, leading the Global Economics team to lower their global growth estimates. While higher oil prices offer a modest tailwind to energy production and fiscal revenues for some countries, they also mean higher costs and tighter financial conditions, with the net effect being that 2026 GDP estimates were cut in the 0.3-0.5 ppt range.
Savita Subramanian highlights that U.S. corporate earnings have remained resilient, supported by strength in energy and tech, and discusses how the recent selloff, combined with positive earnings revisions, informs her view on the S&P 500 and whether earnings are likely to remain relatively unfazed. She also outlines preferred sectors, while we cover the key risks to economic and earnings forecasts from here. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation.
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