View from the Observation Deck

Today’s post compares the performance of consumer stocks to the broader market, as measured by the S&P 500 Index, over an extended period. Given that consumer spending has historically accounted for roughly two-thirds of U.S. gross domestic product, we think the performance of consumer stocks may offer insight into potential trends in the broader economy.

Staples have dominated their discretionary peers year-to-date (YTD). 

The S&P Consumer Staples Index had a strong start in 2026, increasing by 7.71% (total return) in January amidst ballooning AI capital expenditures and faltering consumer confidence. Consumer discretionary stocks, by contrast, increased by just 1.71% during the month. Since then, the performance differential between these indices has grown substantially, with staples increasing by 6.65% (total return) YTD through 4/7, compared to a decline of 9.82% for discretionary stocks over the period.

So, just how healthy is the U.S. consumer?

Real consumer discretionary spending totaled $14.2 trillion over the trailing 12-months ended January 2026, an increase of 2.9% from $13.8 trillion over the same period last year. We maintain that burgeoning U.S. household net worth is one catalyst behind the increase. The Federal Reserve reported that U.S. household net worth totaled a record $184.1 trillion in Q4’25, an increase of $2.2 trillion from the previous quarter, according to Bloomberg. Household debt levels also grew, increasing by $191 billion quarter-over-quarter to $18.80 trillion in Q4’25. Even so, consumers do not appear to be struggling with the increased debt burden. The share of consumers with accounts in collections fell to 4.6% in Q4’25, a near record-low for the data series. 

Takeaway: As shown in today’s table, total returns for the S&P 500 Consumer Discretionary Index generally outpace those of the S&P 500 Consumer Staples Index, over time. This year’s results have defied this convention, with staples extending their lead over discretionary companies through 4/7. Even so, we wonder if these results reflect systemic issues or near-term, exogenous factors like the Iranian war. The data appears to support the latter, in our view. While true that U.S. households carry more debt than ever before, their capacity to service that debt has also increased, resulting in the lowest share of accounts in collections on record. Furthermore, capitalism continues to prove itself as the world’s most potent wealth generation engine. According to the American Enterprise Institute, 31.1% of U.S. households earned enough to be considered “upper-middle class” in 2024, up from just 10.4% of households in 1979. Amazingly, 2024 was the first time in U.S. history where more households were above the “core middle class” (34.8%) than below it (34.5%). We truly live in unprecedented times! 

This table is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index comprised of companies spanning 19 subsectors in the consumer discretionary sector. The S&P 500 Consumer Staples Index is a capitalization-weighted index comprised of companies spanning 12 subsectors in the consumer staples sector.  

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code, or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.

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View from the Observation Deck

We are often asked what our favorite sectors are. Sometimes the answer is evident while other times hindsight offers the best clarity. Today’s blog post is one that we update each quarter to lend context to our responses. While the above chart does not contain yearly data, just three sectors in the S&P 500 Index (“Index”) have been the top-performer in back-to-back calendar years since 2005. Information Technology was first, posting the highest total return in 2019 (50.3%) and 2020 (43.9%). Energy was second, posting the highest total return in 2021 (54.4%) and 2022 (65.4%). Communication Services was the most recent addition to this exclusive club, posting a total return of 40.2% in 2024 and 33.6% in 2025, according to data from Bloomberg.

• The top-performing sectors and their total returns in Q1’26 were as follows: Energy (38.3%), Materials (9.7%), and Utilities (8.3%). The Index’s total return was -4.4% over the period. The other eight sectors generated total returns ranging from 7.7% (Consumer Staples) to -9.5% (Financials).
  
  
• By comparison, the total returns of the top-performing sectors in the first quarter of 2025 were as follows (not in chart): Energy (10.2%), Health Care (6.5%), and Consumer Staples (5.2%). The worst-performing sectors for the period were: Communication Services (-6.2%), Information Technology (-12.7%), and Consumer Discretionary (-13.8%).
  
  
• Click here to access our post featuring the top-performing sectors in Q2’24, Q3'24, Q4'24 and Q1’25.

Takeaway: Despite prevalent weakness in the month of March, six of the Index’s eleven sectors saw positive total returns in Q1’26, with Energy, Materials, and Utilities forming the trio of top sectors during the quarter. The obvious standout is the Energy sector, which increased by 38.3% over the period, propelled upward by the ongoing Iranian conflict and subsequent closure of the Strait of Hormuz. Inflation expectations edged higher in the wake of surging oil prices, resulting in diminished rate cut expectations over the near term. The broader Index declined by 4.4% in Q1’26 (total return), led lower by the Information Technology, Consumer Discretionary, and Financials sectors. As we see it, recalibrated interest rate expectations likely explain the weakness in these cyclical sectors. Will a different sector rise to the top in the second quarter of 2026? We look forward to seeing what the data reveals.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The respective S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.  

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View from the Observation Deck

Today’s table offers a comparison of 2-year and 10-year government bond yields across ten countries. We also include the trailing 12-month yield change for each country’s respective tenor. We last updated this topic in November 2025 (click here to view it).

Global government bond yields surged over the period captured in the table, with 10-year yields increasing in all but two countries (China and Switzerland) over the 12-months ended 3/30/26.

Australia, France, and Italy saw the largest increase in their 2-year yields, which surged by 97.9 basis points (bps), 65.6 bps, and 64.1 bps, respectively, over the period. Japan, Australia, and Canada saw the largest spikes in their 10-year yields, with trailing 12-month increases of 82.8 bps, 61.0 bps, and 49.7 bps, respectively.

Despite recent declines, headline inflation is expected to surge in the coming months.

While the data is not presented above, the months following our last post brought some relief to the global pace of rising prices, with headline inflation declining within six of the ten countries in the table. That said, energy price shocks from the war with Iran have reignited near-term global inflation concerns. Tellingly, seven of the ten countries above have year-end inflation forecasts that exceed their current headline observations.

Most real yields (yield minus inflation) offered by 10-year government bonds increased since our last post.

Higher yields, combined with declining inflation (noted above), resulted in nine of the ten 10-year government bonds offering greater real yields than they were in November 2025. The only exception was China, whose real yield declined by 1.58 percentage points since 11/3/25. At 2.31 and 1.30 percentage points, respectively, Japan and the U.K. had the largest increase to their real yields over the period. As shown in the column marked “12-Month Change (Basis Points)”, China and Switzerland were the only governments whose 10-year bond yields did not increase over the trailing 12-months.

Takeaway: As we see it, energy price shocks from the war with Iran present a real challenge to fixed income investors. On one hand, the resultant current real yields may offer an opportunity. On the other, persistent inflation could result in increasingly restrictive central bank policies, which may push yields even higher (and prices lower) over the near term. It appears investors expect the latter scenario. On 3/30/26, the U.S. federal funds rate futures market revealed that the federal funds target rate is expected to settle at 3.61% in 2026, up from an implied rate of 3.05% at the start of the year. For context, it currently sits at 3.75% (upper bound). That said, we believe investors should be wary of becoming too reactionary. The recent surge in energy prices is largely a byproduct of war rather than a systemic breakdown. While it’s impossible to time the war’s end, we expect these price pressures will subside when peace reigns again.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing.

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View from the Observation Deck

Today’s post provides a snapshot of the total returns of 11 major bond indices since 8/4/20. We chose this as the starting date because the yield on the 10-year Treasury note (T-note) closed at an all-time low of 0.51% that day, according to data from Bloomberg. The 10-year T-note’s yield increased substantially since then, climbing to 4.99% on 10/19/23 (most-recent high) before settling at 3.62% on 9/16/24 (most-recent low). On 3/24/26, the yield on the 10-year T-note yield stood at 4.36%, representing an increase of 386 basis points from its all-time low. To view the last post we did on this topic, click here.

Eight of the 11 debt categories presented in today’s chart registered positive total returns over the period.

This marks an improvement from our last post on this topic (July 2025) when just six categories were positive but masks the fact that most of these asset classes have generated negative total returns so far in 2026. At just 0.07%, the 1-3 Year U.S. Corporate Bond Index is the only index in today’s chart with a positive total return year-to-date (YTD) through 3/24. We suspect some investors will find this surprising given fixed income assets generally act as havens during periods of economic and geopolitical turmoil like those we are currently experiencing.

Expectations regarding upcoming Federal Reserve (“Fed”) policy decisions have exhibited significant variance this year, lending context to recent returns among fixed income asset classes. 

As of 12/31/25, the federal funds rate futures market implied more than two cuts were expected throughout 2026. In a stunning reversal, the market now implies that the Fed could raise its policy rate by year’s end. In our estimation, this rapid reversal is likely the result of surging energy prices (and their subsequent pressure on near-term consumer price index levels) as well as heightened geopolitical risks resulting from the war with Iran.            

Let’s get real.

Inflation, as measured by the trailing 12-month rate of change in the consumer price index (CPI) stood at 2.4% in February 2026. As we noted in our discussion from Thursday of last week, February’s result marks the second month in a row where the CPI was below its 25-year average of 2.5%. By contrast, the 10-year T-note offered a yield of 4.36% on 3/24/26, representing a real yield (yield minus inflation) of 1.96%. While we expect near-term CPI may increase (as energy prices are reflected in the data) we do not expect the return of negative real yields seen in COVID’s wake. 

Takeaway: Total returns for ten of the eleven fixed income indices tracked in today’s chart have improved since our last post on this topic in July 2025. That said, YTD returns reflect mounting headwinds which stifled this momentum. Notably, the 1-3 Year U.S. Corporate Index is the only index in today’s chart with a positive total return YTD through 3/24. In a stark reversal from the start of the year, investors now largely expect the Fed may increase interest rates in 2026, pressuring fixed income prices. As the fourth week of the war with Iran ends, we are reminded that there is no way to gauge its duration, and therefore the depth of its impact on global markets. Will energy price shocks lead to restrictive central bank policy in the coming months, or will a cease fire ease these mounting pressures first? We plan to update this discussion as conditions warrant.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The Morningstar LSTA U.S. Leveraged Loan Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market. The ICE BofA Emerging Markets Corporate Plus Index tracks the performance of U.S. dollar and euro denominated emerging markets non-sovereign debt publicly issued in the major domestic and eurobond markets. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA U.S. Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market. The ICE BofA 1-3 Year U.S. Corporate Index is a subset of the ICE BofA U.S. Corporate Index including all securities with a remaining term to maturity of less than 3 years. The ICE BofA 1-3 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity of less than 3 years. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 7-10 Year Global Government (ex U.S.) Index tracks the performance of publicly issued investment grade sovereign debt denominated in the issuer's own domestic currency with a remaining term to maturity between 7 to 10 years, excluding those denominated in U.S. dollars. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. 

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View from the Observation Deck

Total assets invested in covered call strategies have grown rapidly over the past several years. Data from Morningstar Direct reveals that net assets in the “derivative income” category of ETFs increased by $33 billion in 2024 and $56 billion in 2025, marking five consecutive years of record inflows for the category.

Covered call strategies tend to be most beneficial when the stock market posts negative returns, or when returns range from 0%-10%.

The S&P 500 Index posted a negative total return four times in the table above (including YTD in 2026). The CBOE BuyWrite Index outperformed the S&P 500 Index in three of those four periods (missing the fourth by 0.39 percentage points in 2018). For comparison, there are three years in the table where the S&P 500 Index posted returns between 0% and 10%. The CBOE BuyWrite Index outperformed the S&P 500 Index in each of those time frames.
While covered call options can generate an attractive income stream and serve as a hedge against negative price movement, they may limit the potential for capital appreciation.

There were 14 years in today’s table where the S&P 500 Index notched total returns of 10% or more. The CBOE BuyWrite Index underperformed the S&P 500 Index in every one of them, including last year when the S&P 500 Index increased by 17.86%, vs. the BuyWrite Index’s 8.91%.

Takeaway: Covered call strategies may serve as a unique alternative to the S&P 500 Index. That said, while the income they provide has generally led to outperformance during negative or moderately positive periods, returns often fall short during times where the market is performing exceedingly well. As a recent example, the S&P 500 Index surged by 17.86% in 2025, outperforming the CBOE BuyWrite Index by 8.95 percentage points. As the table above shows, the opposite has been true so far in 2026, with the CBOE BuyWrite Index outperforming the S&P 500 Index by 2.83 percentage points on a total return basis (thru 3/20/26). As noted above, investors continue to allocate record amounts of capital to derivative income instruments amidst heightened volatility from tariffs, geopolitical strife, and deteriorating economic data. Will these factors persist, prompting investors to continue purchasing these strategies? We will report back as updates require.

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View from the Observation Deck

Today’s post is intended to provide insight into the movement of bond prices amidst the current investment climate and prevailing interest rate policy. Aside from the most recent data, other dates in the chart are from prior times we’ve written on this topic. Click here to view our last update to this series.

Since our last update in December 2025, prices have declined for all but one of the indices in today’s chart.

We also note that price observations for five of the eight indices now sit at time series lows, reflecting surging yields and increasing credit spreads amidst weakening jobs data, a downward revision to Q4’25 GDP, and a larger-than-expected increase in February’s producer prices. By contrast, prices for long-duration municipal securities and intermediate term U.S. treasuries increased over the time series despite slight weakness since 11/28/25.

Inflation remains above the Federal Reserve’s (“Fed”) stated goal of 2.0% but currently rests below its long-term average. 

Inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index (CPI), stood at 2.4% in February 2026, down from its most recent high of 3.0% in September 2025. This marks the second month in a row where the CPI was below its 25-year average of 2.5%. 

Takeaway: At last year’s close, the 2026 year-end target rate implied by the federal funds rate futures market stood at 3.05%, representing a decline of 70 basis points over at least two cuts during the year. Much has changed since then, including heightened geopolitical risks from the war in Iran, surging energy prices, higher than expected producer prices, and downward revisions to Q4’25 U.S. GDP. On 3/17/26, the federal funds rate futures market revealed that investors expect fewer rate cuts in 2026 (just one) and a higher year-end target rate (3.38%). As we see it, today’s chart reflects these expectations, with prices for all but one of the Indices we track declining since our last review of this topic (fixed income prices and yields typically move in opposite directions). By contrast, prices of long-dated U.S. municipal securities and intermediate U.S government bonds each increased since our observations on 9/26/25. We don’t find the increase in credit spreads revealed by this data overly alarming as spreads often rise during periods of heightened risk like those outlined above. We will keep close watch on the data and report back as necessary.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The Morningstar LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofA U.S. Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.

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View from the Observation Deck

In a series of posts last week, we focused on the year-to-date (YTD) total return of the S&P 500 Index’s (“Index”) best-and-worst-performing subsectors. While investment return data can be incredibly useful, we suspect most of our readers are keenly aware that: “past performance is no guarantee of future results.” With that in mind, we thought a discussion focused on what we believe is one fundamental driver of market performance (over time) was warranted. Today’s charts reveal the YTD change in analysts’ calendar year 2026 and 2027 estimated earnings per share (“EPS”) for the fifteen subsectors we highlighted as the worst performers last week (click here to view the parent post). 

• As indicated in the charts above, calendar year 2026 and 2027 EPS estimates for the Real Estate Services subsector declined by 15.8% and 14.0%, respectively, between 12/31/25 and 3/13/26. Real Estate Services was the worst performing subsector YTD in 2026 as of our last post (3/10). 
  
  
• For comparison, Passenger Airlines, which was the fifteenth worst-performing subsector as of our last post, saw calendar year 2026 and 2027 EPS estimates increase by 6.8% and 8.4%, respectively, over the same period. 
  
  
• The software industry provides an additional data point worth mentioning. Calendar year 2026 EPS estimates for Application Software and Systems Software, which were among our fifteen worst-performers last week, increased by 2.5% and 1.8% over the period covered in today’s chart. Estimates for 2027 reveal a similar pattern, increasing by 2.0% and 1.3%, respectively, so far this year.

Takeaway: Continued disruption from artificial intelligence (AI), weakening economic data, and war are just a few headwinds investors must parse as they allocate capital. From our perspective, investors appear to be taking a more conservative stance compared to recent years, which may explain several of the worst-performers highlighted in our discussion last week. Even so, near-term performance may not tell the whole story, in our opinion. As revealed in today’s charts, calendar year 2026 and 2027 EPS estimates for most of this year’s worst-performing subsectors increased over the observed period. As always, these are estimates and are subject to change. We will continue to report back as developments warrant.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry. 

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View from the Observation Deck
Today's blog post is for those investors who want to drill down below the sector level to see what is not performing well in the stock market this year. The S&P 500 Index (“Index”) was comprised of 11 sectors and 125 subsectors as of 3/6/26, according to S&P Dow Jones Indices. The 15 worst-performing subsectors in today’s chart posted total returns ranging from -12.10% (Passenger Airlines) to -21.87% (Real Estate Services) over the period. Click here to view our last post on this topic.

• As indicated in the chart above, the S&P 500 Information Technology Index accounts for four of the 15 worst-performing subsectors year-to-date (YTD) through 3/10.
  
  
• Five of the 11 sectors that comprise the broader Index delivered negative total returns YTD through 3/10. Financials and Consumer Discretionary were the worst performers, generating total returns of -8.69% and -4.99%, respectively. The broader S&P 500 Index declined by 0.71% over the time frame.
  
  
• The smallest S&P 500 Index sector by weight was Real Estate at 1.98% as of 3/6/26, according to S&P Dow Jones Indices. Materials and Utilities were the next-largest sectors with weightings of 2.03% and 2.49%, respectively.

Takeaway: Four of the worst-performing subsectors in today’s chart belong to the S&P 500 Information Technology Index. Information Technology is also the third-worst performing sector in the Index YTD, generating a total return of -4.07% through 3/10. Perhaps unsurprisingly, two of these four subsectors, Application Software and Systems Software, are related to the software industry, which came under pressure from AI disruption earlier this year. Financials generated the lowest total return of all 11 sectors at -8.69% YTD through 3/10. In our view, the sector’s pullback is likely the result of a weakening labor market, rising delinquencies (among lower income households), and an indeterminate end to the war in Iran. As always, there are no guarantees, but there could be some potential deep value opportunities in this group of subsectors. For those investors who have interest, there are a growing number of packaged products, such as exchange-traded funds, that feature S&P 500 Index subsectors.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry. 

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View from the Observation Deck
Today's blog post is for those investors who want to drill down below the sector level to see what is performing well in the stock market. The S&P 500 Index (“Index”) was comprised of 11 sectors and 125 subsectors on 3/6/26, according to S&P Dow Jones Indices. The 15 top-performing subsectors in today’s chart registered total returns ranging from 49.14% (Commodity Chemicals) to 20.03% (Consumer Electronics). Click here to view our last post on this topic.

• As indicated in the chart above, all five subsectors that comprise the S&P 500 Energy Index are among the top performers year-to-date (YTD) through 3/6.
  
  
• With respect to the 11 major sectors that comprise the Index, Energy posted the highest total return for the period captured in the chart, increasing by 26.47%. The second and third-best performers were Consumer Staples and Industrials, with total returns of 10.66% and 9.61%, respectively. For comparison, the Index’s total return was -1.34% over the period.
  
  
• As of 3/6/26, the most heavily weighted sector in the Index was Information Technology at 32.95%, according to S&P Dow Jones Indices. Financials and Communication Services were the next-largest sectors with weightings of 12.54% and 10.53%, respectively.

Takeaway: The S&P 500 Energy Index increased rapidly this year, realizing total returns of 14.43% and 9.43% in January and February, respectively. March has produced more of the same. In fact, energy is the only sector to boast a positive total return (1.00%) in March (through 3/6). In our view, several recent events are likely catalysts for the sector’s outperformance. The most recent (and seemingly most obvious) is the war in Iran, which continues to disrupt global energy supply lines. The price per barrel of WTI crude oil spiked 35.63% in just one week since the war’s inception (2/27/26 – 3/6/26). As noted above, energy company prices were already growing prior to the war, driven in large part by massive U.S. winter storms and investor’s increasing desire for diversification. Today’s list of top performers also includes three entries from the S&P 500 Industrials Index. From our perspective, this is likely the result of U.S. reshoring amidst tariff pressures. There is much debate regarding the legality of these tariffs, but it is our opinion that committed capital is unlikely to be quickly reallocated even if tariffs are struck down.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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View from the Observation Deck

We update this post on an ongoing basis to provide investors with insight regarding the earnings climate of the S&P 500 Index (“Index”). While quarterly earnings estimates are a useful indicator of a company’s financial performance, they are not guarantees. Equity analysts continually adjust their estimates as new information is obtained. As of 3/4/26, 492 of the 503 stocks that comprise the Index had reported Q4’25 earnings, according to data from FactSet. We previously relied on data from S&P Dow Jones Indices to create the chart above but will be using observations from FactSet moving forward. On a personal note, we congratulate Howard Silverblatt on his retirement from S&P where he worked diligently for nearly 49 years, lending context to an ever-changing investment landscape. Thank you, Howard!

FactSet reported that the Index’s Q4’25 blended, year-over-year (y-o-y) earnings growth rate stood at 14.2% on 2/27/26.

This marks the fifth consecutive quarter of double-digit earnings growth for the Index. 

The percentage of Index companies that beat earnings expectations in Q4’25 (74.8% as of 3/3/26) is below the 5-year average of 78.0%.

At 74.8%, Q4’25’s earnings beat rate is the third lowest in today’s dataset and appears to be at odds with the double-digit earnings growth noted above. We do not see this as a point of alarm, nor do we believe it signals a weakening earnings outlook. Tellingly, each of the eleven sectors that comprise the Index reported y-o-y earnings growth in Q4’25. Meanwhile, calendar year estimates reflect strengthening earnings expectations among analysts. FactSet noted that analysts increased their calendar year 2026 Index earnings estimates from 311.25 to 313.62 between December 31, 2025 and February 26, 2026.

The three sectors with the highest Q4’25 y-o-y earnings growth rates and their percentages were as follows (as of 2/27/26): Information Technology (33.4%); Industrials (26.7%); and Communication Services (13.1%) For comparison, Energy, Health Care, and Consumer Discretionary experienced y-o-y earnings growth rates of 1.2%, 0.4%, and 0.4%, respectively.

Takeaway: At 74.8%, a below-average number of Index constituents reported earnings that exceeded estimates in Q4’25. That said, calendar year earnings estimates hint at record observations in the years to come. FactSet reported that the Index’s bottom-up calendar-year earnings estimates total a record 313.62 and 363.14 in 2026 and 2027, representing y-o-y increases of 14.7% and 13.3%, respectively. For comparison, the Index’s y-o-y earnings growth rate averaged 9.9% over the past 10 years. Revenue estimates lend support to analysts’ earnings optimism. The Index’s blended revenue growth rate was 9.4% in Q4’25, marking the 21st consecutive quarter of revenue growth as well as the highest revenue growth rate since Q3’22, according to FactSet. Are equity markets overpriced, or are current values justified by persistent earnings and revenue growth? Stay tuned!

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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