The US stock market has entered the first-quarter earnings season of 2026 in a state of stark dissonance: valuation multiples are rapidly contracting, while corporate profit forecasts continue to rise.

According to the latest weekly report from Goldman Sachs Group Inc. (NYSE:GS) titled "Weekly Kickstart," the S&P 500 index has dropped by 9% from its January highs. The primary driver of the sell-off has been a combination of macroeconomic shocks: a sharp spike in energy prices, rising interest rates, and geopolitical instability fueled by the escalation of the military conflict in Iran.

Against this backdrop, the price-to-earnings (P/E) ratio of the benchmark index has decreased from 21x to 19x over the past month. The paradox of the current situation is that despite the market's steep correction, analysts have raised their consensus earnings per share (EPS) forecasts for 2026 by 3%.

Sentiment reset and fundamental background

Technical analysis indicates that some investors are capitulating. Goldman Sachs' sentiment indicator for US stocks has fallen to -0.9, the lowest level since August 2025. Historical statistics show that when the indicator falls below -1, it typically precedes a period of above-average market returns.

However, bank strategists warn that mere technical oversold conditions are insufficient to trigger a sustainable rally. The market requires a clear improvement in fundamental prospects. Otherwise, current valuations are pricing in the risk of further declines if the Middle Eastern conflict continues to escalate.

That said, the fundamental basis of the US corporate sector remains solid for now. Goldman Sachs maintains its baseline 2026 profit growth forecast for the S&P 500 at 12%, noting that this scenario holds only if macroeconomic shocks do not take on a protracted character.

Inflation, rates, and earnings season

The upcoming earnings season will serve as a critical test for Wall Street's optimism. Investors will be looking for evidence in balance sheets that companies can maintain margin levels amid soaring oil costs and disrupted global trade routes.

Market attention is also shifting to the Federal Reserve's response. Stagflationary pressures from geopolitical events and persistent core inflation make the path to potential interest rate cuts particularly challenging. In the context of a paradigm of "higher rates for longer," investors are increasingly favoring companies with strong quality metrics and resilience on their balance sheets.

According to Goldman Sachs, it is the quality of corporate guidance from top management in first-quarter reports that will determine whether the S&P 500 can find a true bottom at current levels.