Q1 S&P 500 earnings are up 15% so far. In the first two weeks of US reports, 84% of companies beat EPS forecasts, but results were less than 2% above expectations and below long-term averages.
Q2 and full-year guidance is uneven. Equity gains in April broadened in the US and supported other regions, but leadership has stayed focused on semiconductors, AI-linked names and parts of energy, while defence has lagged.
Earnings Surprise And Market Breadth
Energy had the largest change in earnings outlooks, moving from -12% to +1%. The next two weeks of reports are framed as important for meeting expectations in that sector.
AI performance has split between software and semiconductors. The Philadelphia Semiconductor Index has reached new historic highs.
Oil volatility and geopolitical uncertainty are described as potential pressures on forward estimates, valuation multiples and risk appetite. Elevated dispersion points to a more selective market for the rest of the quarter, with broader leadership linked to oil stability and lower conflict risk.
We are seeing strong Q1 earnings growth, but the small margin of surprise over expectations is a warning sign. With guidance for the rest of 2026 being so uneven, the market is signaling caution, which is reflected in the VIX holding stubbornly above 18 this month. This suggests that broad index call options are less attractive than more targeted strategies.
Leadership is very narrow, concentrated in semiconductors and certain AI-related companies. The Philadelphia Semiconductor Index (SOX) just hit another record high this week, showing continued strength in that specific area. We should consider using call spreads on semiconductor ETFs or specific leading names to capture further upside while defining our risk.
Options Strategies For A Selective Market
The key risk factor remains oil volatility, with WTI crude futures swinging in a wide $85-$95 range throughout April due to ongoing geopolitical tensions. This makes the energy sector a tricky place for simple directional bets, so we might look at selling premium through iron condors on energy ETFs to profit from sideways consolidation. This approach capitalizes on the elevated implied volatility without taking on excessive directional exposure.
Looking back at the broad rally we saw in late 2025, the current environment feels much more selective and less forgiving. The high level of dispersion between winning and losing sectors creates opportunities for pairs trades, such as going long resilient tech names while buying puts on lagging industrial or defense sectors. This strategy can insulate a portfolio from macro shocks while profiting from the clear divergence in performance.
If tensions ease and oil prices stabilize below $90, we should be prepared to see market leadership broaden out. However, if uncertainty persists, our focus must remain on using options to play secular growth stories. This means targeting companies with strong balance sheets and the power to set prices, as they are best positioned to navigate a challenging environment.
