ROI-Stock markets keep powering forward. These three reasons justify it: Helen Jewell

Global earnings growth expectations stand at 20% for 2026, and earnings-per-share forecasts have been revised up by more than 6% since the U.S.-Israeli attacks on Iran on February 28, according ‌to Goldman Sachs. But judging by the metrics that typically ⁠matter most – namely earnings, valuations and flows — the current market environment doesn’t look frothy.

The Middle East conflict has pushed oil above $100 a barrel, stoked inflation, dented ​growth and forced central banks back toward tightening. Equity markets may have stalled slightly in ‌recent ​days, but they have been hitting records for months. There are three key reasons why. The first is earnings growth. Earnings drive markets over the long term, and they are currently influencing the here and now. Global earnings growth expectations stand at 20% for 2026, and earnings-per-share forecasts have been revised up by more than 6% since the U.S.-Israeli attacks on Iran on February 28, according ‌to Goldman Sachs. Energy earnings have driven much of this, of course, with growth revised up a whopping 57%, as the price of oil has soared. Yet many other sectors have also seen earnings expectations increase since the end of February. This includes a 2% upward revision for technology – a sector that already came into the year with bumper growth forecasts. The main driver of this rosy outlook for tech – and for much of the market – has been the enormous corporate investment into artificial intelligence, a trend that has outweighed any investor fears of a ‌conflict-related earnings drag. AI capex is expected to total nearly $800 billion in 2026. Analysis from BlackRock Fundamental Equities estimates that the cumulative total could rise to as much as $8 trillion by 2030. This unprecedented spending push could represent a long-term source of earnings ‌support, especially for companies in the U.S. and Asia that provide much-needed memory and power.

AI is also highly energy intensive. This technological revolution coupled with the current energy shock is therefore apt to speed up the energy evolution as governments increasingly focus on energy independence and an “all of the above” strategy involving both fossil fuels and renewables. Stock pickers may find sizable earnings growth in areas such as energy infrastructure, clean energy generation, power transmission and energy efficiency. VALUATIONS IN PERSPECTIVE

Valuations are the second reason, and they obviously follow directly from earnings. Indices may be near all-time highs, but valuations are not. Earnings growth in some areas of the market has been ⁠so strong that ​price-to-earnings levels now actually look less extreme than they did a few ⁠months ago. In fact, the P/E ratio for the S&P 500 has dropped to around 21.5 from pre-conflict highs above 25, largely because earnings growth expectations have risen 6% since the conflict began, according to Goldman Sachs. And it’s a similar picture for global stocks. Most strikingly, the P/E ratio for technology stocks is currently around ⁠25, down from 36 at the end of 2025, according to LSEG. Again, these levels reflect the strength of earnings – the "E" – which has been boosted while the price – the "P" – hasn't kept up. We believe this is a sign that fears over market complacency may be overdone. If there is a durable ​solution to the Middle East conflict - and the Strait of Hormuz reopens - overall market levels could march even higher, with leadership expanding beyond AI-related winners. Finally, we come to the third reason: flows. Robust earnings and reasonable valuations have kept global ⁠investors in a risk-on stance. BlackRock data shows that flows into global exchange-traded products amounted to $213 billion in April – the sixth-highest month for inflows on record. Most of this money – around $150 billion – went into equity products, while flows into commodity funds were also positive. Given the strong fundamentals of today’s market leaders, this trend is unlikely to reverse.

CLOUDS ON ⁠THE ​HORIZON Yet risks remain. One is that oil prices may remain elevated throughout 2026, leading to shortages of refined products, higher inflation and lower growth. Equity valuations have adjusted to reflect this uncertainty. (Indeed, this helps explain why prices haven’t kept up with earnings.) But we do not believe markets have fully priced in this risk, particularly given the size of the current supply shock and the building pressure in the bond market.

A second risk is that the large AI spenders - such as U.S. tech companies - reduce their investment plans, ⁠perhaps due to shareholder pressure or a weakening consumer, just as extra capacity for semiconductors comes online. This would upset the supply-demand imbalance that currently favors chipmakers and many other companies within the broader AI supply chain. In short, questions about market complacency amid geopolitical ⁠and macroeconomic uncertainty are legitimate. But judging by the metrics that typically ⁠matter most – namely earnings, valuations and flows — the current market environment doesn’t look frothy. It looks decidedly rational.

(The opinions expressed here are those of the author, Helen Jewell, International CIO, Fundamental Equities, at BlackRock. This column is for educational purposes only and should not be construed as investment advice.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on ‌LinkedIn, and X. And listen to the Morning ‌Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and ​finance seven days a week.

(Editing by Anna Szymanski and Marguerita Choy)