Q1 Earnings Strong but Concentrated; Oil Shortage Risks Remain

Overview

This report is Goldman Sachs' weekly macro research review, focusing on three core themes: 2026 Q1 earnings season performance, oil shortage risks triggered by the Iran conflict, and US employment data alongside AI progress. The report argues that while Q1 earnings are strong, market breadth is narrow; European earnings forecasts have been upgraded but remain below consensus; geopolitical risks continue to impact energy markets and currency divergence; and short-term macro data and AI adoption trends warrant close monitoring.

Core views

Regarding earnings performance, the Q1 US earnings season significantly exceeded consensus expectations, led primarily by large-cap tech stocks. Goldman Sachs maintains its 2026 S&P 500 EPS growth forecast of 12%, but believes upside risks skew towards AI infrastructure companies. European Q1 earnings also slightly beat expectations; Goldman Sachs raised its 2026 Stoxx 600 EPS growth forecast from 5% to 10%, mainly reflecting upward revisions for commodity-related sectors amid the Iran conflict. However, Goldman's forecast remains below the consensus of approximately 14%, as non-commodity sector margins are expected to remain roughly flat. Regarding geopolitical risks, although US-Iran negotiations reportedly show progress, the situation remains unclear. Oil exports via the Strait of Hormuz remain at extremely low levels, increasing the risk of global oil shortages. While global oil inventories have not yet reached critical levels, the pace of inventory drawdown and supply tightness in certain regions are concerning, with readily available refined product inventories rapidly approaching extremely low levels. The most urgent shortage risks are concentrated in petrochemical feedstocks (naphtha and LPG) and aviation fuel, with emerging markets in Asia (ex-China) and Europe being most affected. Regarding macro data, Goldman Sachs expects US April non-farm payrolls to increase by 75k, above consensus, reflecting robust signals from alternative employment growth indicators despite a decline in government employment. The unemployment rate is expected to remain at 4.3% (on a rounded basis), with average hourly earnings growing 0.3% month-over-month. The AI adoption rate rose from 18.9% in March to 19.8% in April; while investment growth by semiconductor companies is strong, the impact of AI on the overall labor market remains narrow, with headwinds for employment in marketing, graphic design, customer service, and especially the technology sector. AI is boosting US inflation in the short term, but is expected to eventually have a deflationary effect once productivity gains become widespread.

Analysis framework

Goldman Sachs employs a multi-theme parallel macro analysis framework, evaluating independent themes such as earnings season, geopolitics, employment data, and technology trends separately before synthesizing their market impact. In earnings analysis, it uses an expectation gap methodology to compare actual performance against consensus expectations, distinguishing between market breadth (how many stocks are participating in the rally) and index performance. In energy analysis, it employs a supply-demand framework to assess inventory drawdown speeds and regional supply tightness, rather than looking solely at global aggregates. In currency analysis, it uses the divergence logic between energy importers and exporters to explain USD movements, transmitting geopolitical shocks to FX and rates markets. In AI analysis, it utilizes adoption rate tracking and sector-specific impact analysis to distinguish between short-term inflationary effects and long-term deflationary effects.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Focus on inventory drawdown speed and regional supply tightness in energy market analysis

  When analyzing oil shortage risks, the report looks not only at total global inventories but also at the pace of inventory depletion and supply tightness in specific regions/products. This is a typical application of the supply-demand framework—supply-side constraints often drive price volatility more than demand-side changes.

• Event Gaming & Behavioral FinanceExpectation Gap/Expectation Management

  Comparing actual earnings performance with consensus expectations in earnings analysis

  The report judges the level of surprise by comparing actual earnings performance with market expectations (consensus). The expectation gap is a core driver of short-term stock price fluctuations; beating expectations often leads to positive reactions.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Geopolitical conflicts transmit from energy supply to FX and rates markets

  The report demonstrates how the Iran conflict transmits from constraints on oil exports to currency divergence between energy importers and exporters, and subsequently impacts US Treasury yields. This is a typical application of supply chain transmission analysis.

• Cycle & Prosperity FrameworkProsperity Turning Point Analysis

  Judging prosperity direction through economic activity indicators and GDP forecasts

  The report uses the Current Activity Indicator and GDP forecasts to determine whether the economy is in an expansion or contraction phase, which is a core method of prosperity cycle analysis.

• Company Fundamentals & Financial FrameworkEarnings Quality Analysis

  Distinguishing between market breadth and index performance to assess the sustainability of earnings growth

  The report points out that S&P 500 earnings revisions are relatively narrow, reflecting insufficient market breadth. This implies that earnings growth is concentrated in a few stocks, requiring cautious assessment of overall market earnings quality.

Key data

• S&P 500 2026 EPS Growth Forecast12%Goldman Sachs forecast; upside risks skewed
• Europe Stoxx 600 2026 EPS Growth Forecast10%Raised from 5%; below consensus of ~14%
• US April Non-Farm Payrolls ForecastIncrease of 75kAbove consensus; government employment declining
• US Unemployment Rate Forecast4.3%Unchanged; on a rounded basis
• US Average Hourly Earnings MoM0.3%April forecast
• AI Adoption Rate19.8%April, up from 18.9% in March
• Global 2026 GDP Growth Forecast2.4%Goldman Sachs forecast
• US 2026 GDP Growth Forecast2.1%Goldman Sachs forecast
• China 2026 GDP Growth Forecast4.7%Goldman Sachs forecast
• Eurozone 2026 GDP Growth Forecast0.7%Goldman Sachs forecast
• Crude Oil PriceCurrently $1102026E $100, 2027E $90

Impact & implications

The report believes that strong Q1 earnings coupled with insufficient market breadth cast doubt on the sustainability of the current rally; investors need to monitor whether earnings revisions can broaden to a wider range of stocks. The ongoing Iran conflict will exacerbate economic divergence between energy importers and exporters, reflected in the FX market as increased USD divergence. If US employment data meets expectations, it will reinforce the economic soft-landing narrative, but the impact of AI on employment in specific sectors is already becoming apparent. The effect of yen intervention may be temporary; depreciation pressures remain under fundamental inflation and policy constraints, and investors should monitor whether macro conditions shift.

Risks

• Escalation of the Iran conflict leading to further restrictions on oil exports via the Strait of Hormuz
• Global oil inventory drawdown faster than expected triggering supply shortages
• Intensified impact of AI on employment in specific sectors
• Re-emergence of depreciation pressure after the temporary effect of yen intervention fades
• Insufficient market breadth making the earnings season rally difficult to sustain

What to watch

• Actual data from the US April non-farm payrolls report
• Subsequent changes in AI adoption rates and their impact on employment across sectors
• Developments in the Iran situation and the recovery of oil exports via the Strait of Hormuz
• Yen trends and subsequent intervention actions by Japan's Ministry of Finance
• Whether Q1 earnings season revisions broaden to a wider range of stocks