Analyzing the Energy Sector’s strong earnings outlook

Key takeaways

• The Zacks Energy sector is expected to see 7.6% earnings growth in 2026 Q1, with estimates rising sharply.
• For 2026 Q1 overall, S&P 500 earnings are expected to be up 13.4% YoY on 9% higher revenues.
• The 2026 Q1 cycle will shift into a higher gear following the release of the big banks’ results in mid-April.

The chart below shows the dramatic turnaround in earnings estimates for the Zacks Energy sector in recent weeks.

The green, blue, light blue, and red lines in the chart represent evolving Zacks Consensus earnings estimates for the 2024 (green line), 2025 (blue), 2026 (light blue), and 2027 (red), respectively. The fixed, dark blue line across the chart represents the stock market price action of stocks in the Zacks Energy sector. 

As you can see in the chart, the recent upturn in 2026 earnings estimates has been notably sharper relative to 2027 estimates, reflecting the expectation that the ongoing spike in oil prices will ease over time.

As we noted in this space last week, the Energy sector has a much smaller weightage in the S&P 500 index at present compared to many years ago, both in terms of market capitalization and earnings contribution. But the steadily improving profitability outlook for the Energy sector is nevertheless adding to the overall favorable aggregate revisions trend, which we show a little later in this note.

The Zacks Energy sector is currently expected to enjoy +7.6% earnings growth in 2026 Q1, up from +0.9% growth expected a week back and the -1.9% decline expected at the start of January. For full-year 2026, the expectation today is +16.3%, up from +10% earnings growth expected a week back and +5.4% growth expected at the start of January.

We all intuitively understand that persistently high oil prices are not good for the U.S. economy, as high prices for gasoline, diesel, and other refined petroleum products end up acting as a tax on households. The U.S. economy is primarily consumption-driven, so high oil prices will eventually weigh on consumer spending. Offsetting this equation is the reality that the U.S. is also a major oil producer, the largest in the world, not needing any imported oil.

What I am trying to explain here is that rising oil prices are undoubtedly negative for the U.S. in the final analysis, as the benefit from improved profitability of the country’s energy-producing assets is offset by reduced consumer spending. But high oil prices are not negative to the same extent as they are for many other developed and developing economies that don’t have domestic oil-producing assets. For example, Japan, South Korea, and even Germany and France are entirely dependent on imported oil, and the hit to those economies from high oil prices is significantly more pronounced.

Oil prices in the futures market suggest that market participants don’t expect current supply disruptions to persist beyond the next few weeks. Oil prices will not immediately return to where they were before the start of the conflict, but that is where they will head over time once the conflict ends.

The chart below shows the sector’s earnings picture on a quarterly basis, with aggregate earnings estimates for 2026 Q1 and the following three quarters and actual earnings in the preceding 12 quarters (3 years).

The $28.5 billion that the Zacks Energy sector is currently expected to earn in Q1 today is up from the $26.8 billion expected one week ago.

The chart below shows the aggregate earnings picture for the Zacks Energy sector on an annual basis, with the sector currently expected to earn $127.2 billion in 2026, up from $120.2 billion last week.

There is no doubt that Energy sector stocks have been standout performers lately. The chart below shows the year-to-date performance of the Zacks Energy sector (blue line, up +29.4%) relative to the Zacks Tech sector (red line, down -6%), the S&P 500 index (green line, down -4.1%), and the Russell 2000 index (orange line, up +1.2%).

The earnings big picture

For 2026 Q1 as a whole, total S&P 500 earnings are expected to increase by +13.4% from the same period last year on +9% higher revenues.

The chart below shows the Q1 earnings and revenue growth expectations in the context of where growth has been in the preceding four quarters and what is expected in the coming three quarters.

Estimates for the current period (2026 Q1) have largely been stable, with a steady uptick in recent weeks, as the chart below shows.

We noted earlier how estimates for the Energy sector have benefited from the ongoing Iran war. But the positive revisions trend reflected in the above chart isn’t solely or even mostly due to the Energy sector. Q1 earnings estimates have increased for 7 of the 16 Zacks sectors since the start of January 2026, including Tech, Construction, Basic Materials, and Energy.

The two sets of charts below divide the S&P 500 index into cyclical and non-cyclical sectors, with cyclical sectors accounting for 43.2% of total 2026 Q1 index earnings and non-cyclical sectors accounting for 56.8%.  

The cyclical grouping includes the 11 Zacks, out of the 16 in the index, that can broadly be described as ‘cyclical’. These include Consumer Discretionary, Retail, Autos, Basic Materials, Industrials, Construction, Conglomerates, Energy, Finance, Transportation, and Business Services.

The non-cyclical grouping includes Consumer Staples, Medical, Technology, Aerospace, and Utilities.

The chart below shows the overall earnings picture on a calendar-year basis, with double-digit earnings growth expected in 2026 (and the next two years).

A quick comment on ongoing market volatility in response to developments in the Middle East. Please keep in mind that for these almost upbeat earnings expectations to come true, we need energy markets to stabilize. As noted earlier, an extended period of spiking oil prices has material negative implications for households as well as businesses.

2026 Q1 earnings season scorecard

The 2026 Q1 earnings season will really get underway when JPMorgan, Citigroup, and Wells Fargo come out with their March-quarter results on April 14^th. But the reporting cycle has actually gotten underway already, with 18 S&P 500 members reporting results in recent days for their fiscal quarters ending in February. All of these companies with fiscal quarters ending in February, including bellwethers like Nike (NKE), Oracle (ORCL), FedEx (FDX), and others, are counted as part of our March-quarter tally.

Total earnings for these 18 index members that have reported results already are up +80.4% from the same period last year on +16.6% higher revenues, with 72.2% beating EPS estimates and 83.3% beating revenue estimates.

The comparison charts below compare the growth rates of the companies that have reported with what we have seen from this same group of companies in other recent periods.

The comparison charts below put the Q1 EPS and revenue beats percentages for this group of companies relative to what we have seen from them in other recent periods.