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.
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