The S&P 500 and Nasdaq advanced to record closing highs Friday, extending a rebound that has put earnings power back at the center of the market story. The move shows investors are still willing to pay for growth, but only if companies can prove that demand, margins and artificial intelligence spending remain strong enough to absorb higher energy costs.
US stocks rally meets its earnings gatekeeper
The next test is not simply whether companies beat estimates. It is whether management teams can give guidance strong enough to justify a rapid rally after April’s surge. Investors are turning to another wave of earnings reports and employment data, with AMD, Palantir and Disney among companies due to report next week and the April payrolls report expected May 8.
The earnings bar has moved higher quickly. FactSet’s May 1 earnings update put blended first-quarter S&P 500 earnings growth at 27.1%, up from 15.0% a week earlier, while blended revenue growth rose to 11.1%. FactSet also said 126 S&P 500 companies are scheduled to report results during the coming week, giving investors a broad read on whether the rally has fundamental support beyond the largest technology names.
Oil shock has not broken the US stocks story yet
Oil remains the clearest threat to the rally. Brent crude touched $126.41 a barrel Thursday, its highest level since March 2022, before settling lower, while West Texas Intermediate crude also retreated from its intraday high. The move showed that traders are still dealing with heightened volatility in oil markets as the U.S.-Iran conflict keeps pressure on global supply routes.
The Federal Reserve has not dismissed that risk. In its April 29 policy statement, the Fed said inflation remained elevated in part because of higher global energy prices and kept the federal funds target range at 3.5% to 3.75%. That leaves stocks exposed to a narrow path: earnings must stay strong while oil does not push inflation high enough to force a more restrictive rate outlook.
Continuity: markets have seen this trade before
The current setup echoes the 2022 energy shock, when oil moved above $100 a barrel and equities slid as investors weighed the effects of Russia’s invasion of Ukraine and sanctions on global markets. The key difference now is that earnings revisions have strengthened during the shock rather than deteriorated, making this rally look more like a test of profit durability than a simple relief bounce.
There is also a direct line back to the AI-led market shift that began in 2023, when Nvidia’s forecast helped spark a rush for AI-related stocks. That enthusiasm has broadened into cloud infrastructure, software, semiconductors and power demand, but investors are now demanding evidence that heavy spending is producing real revenue and margin gains.
The comparison with 2020 matters as well. That year’s market rebound showed how quickly investors can look past near-term economic damage when they believe policy support and future profits will improve, a pattern Reuters later described in its review of U.S. stocks in 2020. Today’s rally carries a similar lesson: momentum can persist, but it becomes more fragile when it depends on investors looking through immediate risks.
What could decide the next move
The coming week gives Wall Street three signals to watch: whether companies can protect margins, whether labor data show enough economic resilience without reigniting inflation fears, and whether oil prices remain contained after their recent spike. A steady answer on all three would strengthen the case that the rally can broaden beyond megacap technology.
A weaker answer would make the market look stretched. If executives warn that fuel, freight or wage costs are squeezing profits, or if the jobs report pushes Treasury yields higher, the same earnings optimism that powered the rally could turn into a source of volatility. For now, investors are treating the oil shock as a risk to monitor rather than a reason to abandon US stocks. Next week will show whether corporate profits can keep earning that confidence.
