U.S. earnings review and investor takeaways from Saturday’s Iran strike

Key takeaways

• What to know about the Iran strike
• Q4 earnings growth in U.S. remains robust
• Equity leadership broadens beyond U.S. large caps
• Treasury yields fall despite strong economic data

This article was updated Feb. 28 at 8:30 a.m. Pacific Time

The United States and Israel conducted a joint strike against Iran over the weekend. The main transmission channel from the ongoing conflict onto global markets would be if the Strait of Hormuz becomes disrupted – a passage through which 20-25% of seaborne oil trade and global liquids consumption transit each year.

As markets process this event over the coming days, it is important for investors to understand that from a macroeconomic perspective:

• Oil shocks are less important to global markets than they were decades ago. At this time, we believe the strikes are unlikely to derail global fundamentals. This is because: 
  • The U.S. is now the world’s largest oil and gas producer.
  • The U.S. is a net exporter of oil.
  • Energy intensity has fallen dramatically — gasoline now represents ~2% of U.S. consumer wallet share, a fraction of prior decades.
  • The global economy today is fundamentally different from the 1970s–90s oil shock era.

Investment implication: We would expect to maintain positioning, and potentially add on weakness, if the crisis in the Middle East drives short-term risk aversion without materially impairing fundamentals.

The U.S. is on the back end of fourth-quarter earnings season, and the overall tone from corporate management teams has been constructive. For the S&P 500 Index, earnings growth tracked close to 15% year-over-year, marking a fifth consecutive quarter of double-digit growth. Management guidance looking ahead to the first quarter of 2026 reflects the strongest tone since 2021, reinforcing the durability of the earnings cycle.

Despite that strength, price performance has been more restrained. U.S. large cap equities have largely treaded water so far this year, even as fundamentals improved. Beneath the surface, single-stock dispersion has been elevated as markets reassess how AI could reshape business models and influence terminal values over the medium to longer term. This repricing dynamic has been particularly visible in parts of the software sector, where investors are differentiating more deliberately across companies based on perceived competitive positioning and earnings durability.

Another theme this week was the continued benefit of diversification within equity markets. So far this year, market leadership has widened, with both non-U.S. stocks and U.S. small cap stocks outperforming U.S. large caps.

This shift aligns with one of the themes in our 2026 Global Market Outlook, which is that market leadership is likely to broaden out this year. Case-in-point: Through Thursday’s market close, the MSCI All Country World Index excluding the U.S. has gained 11%. Meanwhile, U.S. small cap equities have risen approximately 8% while their large-cap counterparts have advanced only 1%. This widening gap suggests participation is expanding beyond the narrow group of mega-cap companies that drove returns in prior years.

Meanwhile, in the U.S. Treasury market, bond yields have moved lower even as the economic backdrop remains firm. This economic resilience is evident in the latest data. Recent reports have generally surprised to the upside, growth indicators are holding up, and the labor market — which led the Federal Reserve to lower rates late last year — appears to have stabilized.

Under those conditions, Treasury yields would typically move higher. Instead, over the past month, they’ve declined by more than 20 basis points. The yield curve has also “bull-flattened” — meaning longer-term yields have fallen more than shorter-term rates.

This is not the usual pattern when economic data is resilient, and it suggests investors are placing greater emphasis on managing risk. Ultimately, elevated equity volatility and uncertainty around how AI may alter parts of the market have likely contributed to flows into Treasuries.