The S&P 500 rose 0.81% to 7 259.22; the Nasdaq gained 1.03% to 25 326.13, and the Dow Jones Industrial Average added 0.73% to 49 298.25. The rally was led by semiconductor shares, with Intel jumping 13% after reports that Apple is considering using the company to produce processors for its devices in the United States. Another chipmaker, AMD, also gained 4% ahead of its quarterly results.

The move reflects a broader earnings story. According to an investment research firm, FactSet, with 63% of S&P 500 companies having reported results for the first quarter, 84% have beaten earnings expectations, and 81% have beaten revenue expectations. The index is now on track for blended year-on-year earnings growth of 27.1%, which, if sustained, would be the strongest earnings growth rate since the fourth quarter of 2021, when growth reached 32.0%.

The strength, however, is not evenly spread. FactSet noted that Alphabet, Amazon, and Meta accounted for 71% of the net dollar level increase in S&P 500 earnings over the past week. All three beat expectations by wide margins, but their results were also boosted by large one-off items. Alphabet recorded a $37.7 billion gain linked mainly to non-marketable equity securities; Amazon reported $16.8 billion in pretax gains from investments in Anthropic; and Meta booked an $8.03 billion income tax benefit.

That matters because the rally is being driven by a powerful but concentrated earnings cycle. Growth is clustered in sectors with the heaviest exposure to artificial intelligence (AI), such as communication services and information technology, which are leading the index higher, while healthcare and energy are the only two sectors reporting year-on-year earnings declines.

The momentum around S&P 500 earnings is not expected to fade quickly. FactSet says analysts expect S&P 500 earnings to grow by more than 20% in each of the remaining quarters of 2026.

That positive outlook must be weighed however against the implications of the Iran war going awry, causing global energy prices to hold well above their inflation-adjusted averages deep into 2026. Should that occur, central banks will be under pressure to raise rates, stressing consumers and company debt covenants. The effect of that would be to put the brakes on the earnings outlook, forcing a market pullback and even correction. The test for investors therefore is to understand the likely evolution of the Iran conflict and by extension the global oil price.

This newspaper has argued that if the oil price remains at around $100 per barrel, the effects on the global economy will be subdued, but nearer $110, the effects may be much more serious. The reason is that at $100 the price is still in touch with its inflation-adjusted moving average of the past 15 years. Above that it forces economies to confront unprecedented cost challenges. The oil price reached $120 per barrel in April and now sits at around $109 per barrel.

In April, investors appeared to have priced the Middle East risk as containable. The stronger signal from markets is that AI-linked earnings momentum is still powerful enough to carry Wall Street higher, provided oil does not turn from a shock into a sustained global squeeze.