Stock Market Commentary: Trump Signals a Major Drop in Oil Prices. Will U.S. Stocks Surge?
The recent commentary on the stock market indicates a flattening of the bull market, with Wall Street indices showing modest returns despite improved corporate profitability. Two primary factors are limiting further gains: high oil prices and elevated bond yields. President Trump has suggested that oil prices will "fall sharply soon," citing data from Kpler that indicates oil flows through the Strait of Hormuz have returned to about 80% of pre-war levels. This could imply that Iran is either less inclined to disrupt tanker traffic or is choosing not to leverage this situation.
If Trump's predictions come to fruition, a potential agreement with Tehran or a significant drop in oil prices could unlock further upside for U.S. equity indices. Although it is premature to assert that this scenario will materialize, S&P 500 earnings estimates for the upcoming quarters have recently been revised upward, even as year-on-year growth rates remain below the average seen in the first half of 2026.
Analysts project a 28% year-on-year increase in S&P 500 earnings for Q3 and just under 26% for Q4. These forecasts appear conservative compared to the robust earnings growth observed in the first two quarters of the year. Notably, aggregate S&P 500 earnings for Q2 exceeded market expectations by 26.5%, surpassing the previous record of 23.2% from Q2 2020 and significantly outpacing long-term averages. Excluding the seven largest companies, the remaining 493 S&P 500 firms still reported a nearly 32% year-on-year earnings increase, marking the fastest growth rate for this group since Q4 2021.
Furthermore, 10 out of 11 sectors reported results above pre-season forecasts, indicating that the improvement in corporate performance is widespread and not limited to major AI beneficiaries. Current S&P 500 valuations are now aligned with long-term historical averages, which is atypical during a bull market. The Q2 2026 earnings season has largely exceeded expectations, with 86% of S&P 500 companies reporting earnings per share (EPS) above analysts' forecasts and nearly 80% delivering positive revenue surprises.
Aggregate earnings growth for the S&P 500 currently stands at 52% year-on-year, a significant increase from the 23.1% growth expected as of June 30. The so-called Magnificent 7 companies exceeded analyst expectations by 66.2%, even after accounting for one-off gains from companies like Anthropic and SpaceX.
As Wall Street consolidates near record highs, the prevailing sentiment seems to be one of cautious optimism, suggesting that it may not be "time to die" for the market. If lower energy prices coincide with falling bond yields and reduced expectations for further Federal Reserve tightening, the market could enter a "Goldilocks" phase characterized by favorable conditions driven by improving fundamentals and growing investor confidence.