Citi strategist flags rare setup for earnings season
It was just weeks ago when the market bears had their happy moment in the sun. A big chunk of the stock market felt like it was falling apart. Headlines were heavy, everyone was fearful, sentiment turned sharply bearish, and every bullish retracement looked like a trap (of course, it was) after the war began exactly 49 days ago today. Fast forward to now, and it's like someone flipped a switch in a dark room.
The stock market is suddenly charging into earnings season with momentum that's seemingly through the roof, catching even seasoned investors off guard. It's the kind of sharp swing that makes you pause and wonder, did anything really change, or is something bigger building beneath the surface?
That isn't lost on Scott Chronert, head of U.S. equity strategy at Citi Research, who recently offered intriguing thoughts on what's happening. Scott believes the technology sector is entering a setup that could shape how you interpret the next wave of earnings and where markets go next.
At the center of it all is tech earnings, artificial intelligence (AI) momentum, and a market that may be more fragile, or rather more explosive, than it appears.
Citi strategist sees ‘reverse perfect storm' in tech earnings
Chronert's thesis is actually short, simple, yet very powerful. Instead of strong companies lifting weak ones as we have seen most of the time, he sees struggling segments of tech potentially surprising investors, and driving the next leg higher.
"What you have here is sort of an interesting… reverse perfect storm," he said in a CNBC interview.
In this scenario, lagging sectors, including software and hyperscalers, could deliver stronger-than-expected results. That would reinforce confidence in the broader artificial intelligence (AI) trade and extend the market rally.
S&P 500 could report earnings growth of 19% for Q1
Scott's call comes as the S&P 500 pushes to fresh highs of $7,147, and the Nasdaq Composite extends to an intraday all-time high of $24,519.51, fueled by easing geopolitical tensions and a renewed appetite for risk on April 17.
Under the surface, the fundamentals are also holding up for the S&P 500, according to data from Factset.
- Earnings growth: Estimated at 12.6% YoY for Q1 2026, marking a potential sixth straight quarter of double-digit growth
- Guidance: 51 companies issued negative EPS guidance, while 58 issued positive guidance
- Valuation: Forward P/E at 20.4, above the 5-year (19.9) and 10-year (18.9) averages
- Earnings scorecard: Early results show strength, with 80% beating EPS estimates and 90% topping revenue expectations
- The number of S&P 500 companies issuing positive EPS guidance for Q1 2026 is above the 5-year average of 44 and above the 10-year average of 40
Taken together, the data suggest that this rally isn't just driven by sentiment. Earnings are still doing a lot of the heavy lifting, even as valuations stretch higher.
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Investors are already expecting what Chronert describes as a "beat and raise" quarter, in which companies not only exceed expectations but also raise guidance. That expectation is grounded in recent performance.
Data from Simply Wall Street confirms that the tech sector has surged 7% over the past week and is up more than 55% over the past 12 months, with earnings projected to grow about 20% annually.
Tech ETFs and mega-cap stocks are surely having a great time
The rally isn't just a talk. It's clearly visible in major tech-focused funds. The Technology Select Sector SPDR Fund (XLK) and the Vanguard Information Technology ETF (VGT) are hovering just around their all-time highs. Eight of the eleven sectors are expected to post year-over-year growth, with Information Technology, Materials, and Financials leading the way, Factset reports.
Key fund performance
Data from Yahoo Finance confirms the bullish momentum from the two key funds.
Technology Select Sector SPDR Fund (XLK):
- Price: $154.35
- New all-time high reached at $154.80
- YTD return: up 7.34%
- 1-year return: up 60.97%
- 3-year return: up 28.31%
Source: Yahoo!Finance
Vanguard Information Technology ETF (VGT):
- Price: $805.58
- New all -time high of $807.50
- YTD return: up 6.98%
- 1-year return: up 60.04%
- 3-year return: up 29.01%
Source: Yahoo!Finance.
Mega-cap stocks are driving much of that performance. Names like Microsoft and Oracle have posted sharp gains in recent days, while the so-called Magnificent Seven group has climbed more than 12% this month alone, Reuters confirms.
According to FactSet, tech has seen the largest increase in estimated earnings since December 31, rising 7.9% to $185.7 billion from $172.1 billion, which has pushed its expected year-over-year growth rate up sharply to 45.0% from 34.4%, driven by companies like NVIDIA and Micron Technology.
At the broader index level, the Q1 bottom-up EPS estimate has edged down just 0.3% to $71.37 from $71.57. That's far less than the typical 1.6% decline seen in recent years, suggesting expectations have held up well.
Meanwhile, earnings guidance is also leaning positive, with 58 companies issuing upbeat forecasts compared to 51 with negative EPS guidance, a mix that is stronger than historical averages and points to continued confidence heading into the quarter.
That surge comes after a rocky march and start to April, when geopolitical tensions tied to the Iran conflict pushed investors into defensive positions. Now, sentiment has clearly flipped. A key driver of the market's rebound has been improving outlooks around global tensions.
Related: Goldman Sachs drops blunt warning on tech stocks
Iran has reopened the Strait of Hormuz, a key route for global energy flows, though shipping activity remains cautious amid ongoing geopolitical uncertainty. Donald Trump said the waterway will not be closed again, and urged NATO to "stay away," while also pointing to progress toward a possible deal with Iran as a fragile regional ceasefire holds between Israel and Lebanon.
The reopening has helped ease immediate supply fears, with oil and gas prices dropping sharply, reducing concerns around energy disruption. As tensions cool at the margin, investors have shifted back toward risk assets, including technology stocks.
Chronert noted that this shift mirrors similar behavior seen during past geopolitical scares, where markets quickly rebound once uncertainty begins to fade.
Earnings season may determine whether the rally broadens
For now, the market is waiting for confirmation. Chronert emphasized that investors want "line of sight" clarity on earnings strength, geopolitical stability, and the durability of the AI-driven growth narrative.
If companies deliver, the current rally could extend further and begin to broaden into other sectors over the summer. If they disappoint, the narrow leadership could become a vulnerability.
Either way, this earnings season is shaping up to be more than just another reporting cycle. It may be the moment that determines whether the market's powerful rebound turns into a lasting expansion, or stalls under the weight of its own expectations.
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This story was originally published April 20, 2026 at 8:48 AM.