Closing the Quarter: Q1'26

As we close the quarter, the corporate and investor landscape reflects a complex balance. Earnings commentary broadly pointed to disciplined execution, a theme supported by aggregate top- and bottom-line growth, though not without caveats. Companies signaled they are operating amid a more fluid macro backdrop shaped by geopolitical risk, renewed inflationary pressures, ongoing tariff uncertainty, and continued scrutiny of AI spend.

Consumer health remains in focus. Companies report that demand is not broken, but pressure is building at the bottom of the K as rising costs begin to work their way through the system.

Meanwhile, companies have increasingly positioned AI as both a monetization opportunity and a productivity enhancer. Companies that can both clearly articulate the strategic rationale for using AI and demonstrate the monetization opportunity are being rewarded.

Looking ahead, commentary from Q1’26 suggests that companies are investing in long-term opportunities but are increasingly cautious. Management teams that operate with their eyes wide open and communicate transparently build credibility among investors.

With Q1’26 earnings largely in the books, we Close the Quarter with some notable themes:

• Q1’26 Earnings Performance: Earnings Growth Surges YoY, the Highest Rate Since Q4 2021, as Geopolitical Volatility Does Little to Diminish the AI Fervor
• Guidance Moves and Consensus Shifts: More Maintain, But a Healthy Amount of Raises Seen to Start the Year
• Guidance Assumptions: Companies Begin Incorporating First- and Second-Order Effects of Iran War into Outlook Assumptions; Inclusion of Explicit Assumptions Dependent on Exposure to External Variables
• Iran War and Accelerating Inflationary Pressures: Disruption Translating Unevenly across Sectors and Income Cohorts; Companies Frame Exposure through Costs, Supply Chains, and Consumer Strain as Bottom of the K Gets Caught in the Undertow
• Price vs. Volume: Companies Going on the Pricing Offensive; Commentary Over-Indexes around Price, Leaving Opportunity for Companies to Pair Commentary with the Impact to Consumer and Volumes
• Tariffs and Tariff Refunds: Tariffs Shift from Leading Cause of Corporate Headaches to Normal Course of Business; Conversations around IEPPA Refunds Gaining Prominence, but Messaging Emphasizes the Process and Not the Assumed Outcome or Timing
• Capital Allocation: Global Tensions Result in Companies Pausing Spending Plans, but Secular Capex Story Still Intact
• AI Demand and Monetization: AI Remains a Top Cross-Sector Theme as Companies Increasingly Make the Link to Quantified Financial Outcomes; Rising Costs of Electricity from Data Center Demand Seen as Also Chipping Away at Discretionary Income
• Layoffs and Employment: Reports of Layoffs Concentrated Behind Companies and Roles Easily Disrupted by AI; Headline Job Growth Figure Hides Employment Weakness in Critical Sectors