Why investors should brace for a stock correction after earnings season wraps up
The S&P 500 hit record highs during a strong first-quarter earnings season driven by AI, with 90% of companies beating estimates, but Wall Street strategists warn of a potential stock correction as earnings season ends and market focus shifts to the Federal Reserve and geopolitical risks. Analysts like Nancy Tengler of Laffer Tengler Investments and Scott Rubner of Citadel Securities suggest caution, though they view any downturn as a buying opportunity due to sustained earnings growth and AI-driven corporate strength.
The S&P 500 reached record highs amid the strongest first-quarter earnings season since the post-COVID era, with over 90% of companies reporting results exceeding expectations. Earnings per share (EPS) growth for the S&P 500 hit +25.1% year-over-year, surpassing the +13% forecast, and 84% of companies beat earnings estimates—the highest rate since Q4 2021. Analysts attribute the surge to AI-driven revenue growth, with expectations entering the season already elevated due to robust corporate performance. Strategists warn that stocks may face a correction once earnings season concludes, as the market shifts focus to the Federal Reserve and geopolitical risks, including the Iran war, high oil prices, and potential interest rate hikes. Nancy Tengler, CIO of Laffer Tengler Investments, advised investors to prepare for a market test, noting a lack of positive news flow could trigger volatility. Citadel Securities’ Scott Rubner echoed this caution, stating that after a 17% rally from lows, the risk-reward balance has shifted, making a short-term unwind more likely if momentum weakens. Despite the near-term caution, strategists emphasize that fundamental strength supports long-term equity gains. Tengler highlighted that earnings growth remains sustainable, driven by AI spending and corporate demand, including share buybacks and passive inflows. Mark Malek, CIO of Siebert Financial, called the season ‘stunning,’ with Wall Street firms raising S&P 500 targets toward 8,000, reflecting confidence in AI-powered earnings momentum. The post-earnings lull could present a buying opportunity, according to analysts. Rubner noted that while tactical caution is warranted, the underlying fundamentals—strong Q1 results and accelerating AI investment—remain supportive of equities. Tengler added that any pullback would likely be temporary, given the durable earnings growth fueling market gains. Investors are advised to monitor Fed policy and geopolitical developments as key drivers in the coming months.
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