The only "consolation" in the geopolitical storm: Wall Street still believes in the roaring engine of growth of US stocks. Morgan Stanley expects a 20% surge in S&P 500 earnings.

Despite the turmoil in the Middle East affecting global markets this month, some investors are finding solace in the growth engine of US companies - which not only remains intact but also appears to be flourishing. Currently, Wall Street sell-side strategists are raising profit expectations, ignoring concerns of rising oil prices and potential dampening of consumer demand. Data compiled by Morgan Stanley shows a 20% expected growth in S&P 500 earnings over the next 12 months. Historically, this figure has only been higher than the current level when the US economy has emerged from a recession. Mike Wilson, Chief Investment Officer and Chief US Equity Strategist at Morgan Stanley, stated in a client report on March 23rd, "This supports our view - that the likelihood of the current oil price surge prematurely ending the economic cycle remains low." The optimistic expectations for corporate profits - which have been the core support of the bull market in US stocks for most of the past decade - partly explain the resilience of the S&P 500 index amidst escalating tensions in the Middle East. Despite increasing geopolitical risks, industry disruption from artificial intelligence (AI), and pressure from private credit, this view continues to provide reasons for bulls to hold onto US stocks. Wilson points out that while earnings prospects for S&P 500 index constituents continue to improve, stock prices are simultaneously falling - a phenomenon that is rare during times of geopolitical uncertainty. Historical experience shows that investors who are willing to overlook short-term pains often reap rewards. Data from the institution shows that during phases where analysts raise profit expectations while the S&P 500 index falls, it is usually a prelude to a strong performance from US stocks. According to related compiled data, analysts expect earnings for S&P 500 index constituent companies to grow by 11.9% in the first quarter of this year, higher than the 10.9% before the Iran conflict erupted. Strategist Wendy Soong's compiled data shows that earnings and revenue expectations for the next three quarters have been raised by 1.9% and 1.5%, partly due to the continued fading impact of tariffs. Other institutions on Wall Street are also seeking solace in the outlook for US stocks from corporate earnings. Barclays raised its year-end target for the S&P 500 index and profit expectations on Tuesday, citing a strong US economy and impressive performance of tech stocks. However, optimistic expectations are not without risks. JPMorgan data shows that if oil prices remain at $110 per barrel for the remainder of the year, earnings expectations for S&P 500 index constituent companies may decline by up to 5 percentage points. In three weeks, as large banks lead the way in reporting earnings for the first quarter, the earnings season will officially begin, marking the first crucial test of analyst optimism. If high energy costs persist, they may squeeze consumer spending, erode corporate profits, and make current expectations seem overly optimistic. Garrett Melson, Portfolio Strategist at Natixis Investment Managers Solutions, states that during times of major uncertainty, earnings expectations tend to lag. He points out that even if a sharp market decline occurs in 2025 due to Trump's comprehensive tax increases, analysts' downgrades in expectations for that year are usually delayed until April. "In any uncertainty shock, this tends to happen," he said. "It takes time for the shock to filter down to earnings expectations." With the recent escalation of the Middle East conflict and no signs of easing, market pressure continues to build. Investors have been hoping for Trump to ease the conflict and prevent further declines in risk assets. Trump announced on Tuesday that he is negotiating with Iran and claimed to have received a "big gift" from them, but at the same time, he is deploying more troops to the Middle East. Brad Conger, Chief Investment Officer at Hirtle Callaghan, said, "The market will eventually stop reacting to rhetoric and focus on economic impact - there are many disruptions in the supply chain. When companies start saying 'we have to adjust production, reduce output, or raise prices', that's when companies acknowledge the actual impact of the conflict, and I think the importance of Trump will decrease."