The war takes a toll on growth; but more on economic than earnings
The desk believes that the recent surge in oil prices, driven by geopolitical tensions, will have a more pronounced impact on global economic growth than on corporate earnings. Per the full note from BofA Global Research, they have revised their 2026 U.S. GDP growth estimate down by half a percentage point, primarily due to the higher oil price forecast, while S&P earnings remain resilient, particularly in the energy sector. This divergence suggests that while economic indicators may weaken, earnings could still hold steady, especially if driven by energy sector performance. The consensus among firms shows a mixed outlook, with targets ranging from 1.04 to 1.10 for the USD/EUR pair, indicating uncertainty in currency movements amid these developments.
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.
Hello, and welcome to Global Research Unlocked, where we discuss what's rising from growth industries to rising risks and opportunities in global markets. I'm T.J. Thornton, Head of Product Marketing at B of A Global Research, and we're recording this episode on Tuesday, March 31st, 2026.
Most notably, what we've seen is that the hyperscalers, tech and new media companies have seen about five points of multiple compression. No real drama when it comes to earnings. That's an interesting area.
B of A Global Research's Commodity Strategy team raised their Brent oil price forecast to about $100 for the remainder of 2026. This compares to a spot price of $60 at the start of the year. The significant move in oil prices and forward forecasts led the economics team to cut their 2026 global GDP growth estimate by a few tenths of a percentage point, though it still sits at above 3% for the year.
Today, we're joined by Claudio Irigoyen and Savita Surmanian for a short podcast on these changes and what they mean for markets. Thanks for joining us. Thanks for having us.
Yes, thanks for having us indeed, T.J. Claudio, you and the global economics team cut your 2026 U.S. GDP estimates by about half a point on the back of this higher oil price forecast.
That half point cut was in line with our cut to Europe and a bit more than our cut to EM. Especially as the U.S. is a net oil exporter, why aren't our U.S. growth estimates holding up better? That's a very good question because there is a lot of confusion about the impact of the oil sector in the overall economy.
First of all, out of that half a percentage point cut on average growth, about three tenths is the impact of oil. There is another tenth that has to do with the fact that the first quarter was tracking below our own forecast. We took the opportunity to market what we have seen so far in the first quarter.
Then there is another tweak that has to do with the fact that we're using average growth. If you use fourth quarter versus fourth quarter, we are reducing the growth forecast by four tenths and three out of four tenths is the impact of oil. Regarding the fact that the U.S. is now an exporter, that is absolutely true, but the energy sector is relatively small compared to the overall size of the economy in order to compensate significantly the impact that this stagflationary shock has on consumption and investment.
Long story short, it's an impact on the consumer. It's an impact less so to some extent on investment. It's true that the energy sector helps at the margin, but not enough to offset the overall shock.
Okay. Understood. This next one is for Savita.
Savita, bulls would point to what have been positive revisions for March and June quarter S&P earnings over the last month. Even since the war started, numbers have kept going up, but especially as we and presumably others begin to cut U.S. GDP estimates, do you think that's a lagging measure and that earnings estimates will start to go in the other direction or do you think we're setting up for good news as companies report earnings and that could potentially take stocks higher over the short term, especially given the selloff?
Yeah, TJ, I think it's a complicated exercise determining what the impact has been so far and the house views shifting what that does to S&P earnings because unlike the economy, corporate earnings are less impacted negatively by higher oil prices. While less GDP and a less weak dollar might hit earnings on the negative side, actually higher Brent would be a net positive for earnings where energy contributes a small but still a pretty significant portion of earnings to the S&P. It's interesting because what we've seen in terms of upward revision since the beginning of the year, a lot of those have really been in energy stocks based on higher oil price expectations.
When you look at the consumer sectors within the S&P 500, they're less exposed to that lower income cohort where the higher oil price really hits and they're more exposed to middle and let's call it upper income spending trends, which might be less impacted by higher oil. On top of that, when you look at things like the data and guidance, we haven't really seen any cracks in the data yet. We have ISM above 50, tech earnings have still held up well.
I think that in order to argue that earnings growth wouldn't be at least double digits this year, you'd need to believe that tech is really going to take a hit. The economy is heading into a recession, more negative views than what we're currently penciling in as a house. Claudio, back to you.
There's lots of uncertainty as we're reminded on a daily basis as the headlines go back and forth. What do you think is the biggest upside risk to your new global GDP estimates and what's the biggest downside risk? The world becomes the biggest upside and downside risk at this point.
We've been always making this point that behind our forecast changes, what we care about more is not so much whether oil prices go to 120 or 140, it's more the persistence of the shock. It's worse for the economy, oil prices staying at 120 for six months than going to 200 and then back to 60 quickly. Persistence is key.
Even if the world were to finish tomorrow, even if there were a credible de-escalation, you are going to have some persistence in the adjustment of energy prices, not only oil but also LNG and others. The price of fertilizers will impact probably other economies more than the US. You're going to have a rough adjustment and it's going to be a bumpy path towards the new equilibrium and probably the new equilibrium is going to be significantly higher than the pre-war levels that we observed.
That is, I think, still the biggest risk for the economy, what happens with energy prices. I mentioned at the beginning of the year that most of the surprises at the global level are because of excess global liquidity. You have the stock market making new highs in the US and people were saying it's an AI story, but the stock market was making new highs in Japan, despite the economy not growing and making new highs in China, despite all the excess overcapacity and making new highs in Europe, despite lack of growth and making new highs in Latin America.
There was too much liquidity out there, that's why you have the booming private credit. Therefore, any shock that can tighten global liquidity, that's the shock that really hurts the economy. Today, we are observing one of these shocks.
The oil shock is a stagflationary shock. If that puts the Fed in a position that they need to validate much tighter monetary conditions or financial conditions, that can be a big shock. Obviously, the oil shock represents not only a linear risk, it's actually a very non-linear risk.
Ironically, for oil prices towards 150 and sustained, they are, say, over 120, 130. The biggest risk is the recession, not so much inflation. At some point, the destruction of value, destruction of wealth, destruction of jobs and destruction of demand more than compensates the inflationary impact of the shock.
Ironically, you will end up with lower rates in that scenario, at least from the side of the reaction function of the Fed. Okay, last question. This is for Savita.
The forward PE for the S&P has fallen about four points since last October. Given the multiple compression that we've seen, are valuations starting to look interesting? If we assume the war lasts another two weeks, that it takes some time for the straight to open, but it does open, in which sectors do you want to be positioned?
Valuations are actually quite interesting at this point. At a market level, we've seen multiples drop from really high to just pretty high. They're not necessarily compelling just from a valuation standpoint, but what we have seen beneath the surface is a lot of action in terms of compression in certain sectors.
Most notably, what we've seen is that the hyperscalers, tech and new media companies have seen about five points of multiple compression. No real drama when it comes to earnings. That's an interesting area.
Consumer stocks have derated pretty significantly around the idea that oil will hit demand. If we do see less of a protracted oil shock and some alleviation there, that could be a bullish sign for sectors like consumer. Financials I think has moved not necessarily just because of oil, but really the idea that growth could be weaker if we see a longer geopolitical conflict.
I think that would be another coiled spring where that multiple compression could come back outside of some of the issues that are facing the private lending and alternative lenders in that sector. All in all, we're shifting from where we started the year with a neutral take on the market. Now, given the market moves, we're close to bullish.
We've got about 9% to 10% upside penciled in for this year from current levels. It's an above average market outlook. What we've seen is if there is a meaningful de-escalation and the genie is put back into the bottle, that could actually be pretty positive for the S&P 500 from here.
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