Stock Market Commentary: Trump Signals a Major Drop in Oil Prices. Will U.S. Stocks Surge?

The bull market has not so much lost momentum recently as it has clearly flattened out. Returns across Wall Street indices have been far from spectacular, and despite a meaningful improvement in corporate profitability, two factors appear to have capped further upside: high oil prices and elevated bond yields. The U.S. president once again stressed today that Iran is losing the war and that oil prices will “fall sharply soon.” In fact, according to Kpler data, oil flows through the Strait of Hormuz have recovered to roughly 80% of pre-war levels, which may suggest that Tehran either has fewer reasons to disrupt tanker traffic in the region or is choosing not to use that leverage. What if Trump’s scenario actually materialises? It is not difficult to imagine that any form of agreement with Tehran, or even a meaningful decline in oil prices before such an agreement is reached, could in some sense “unlock” additional upside potential for U.S. equity indices.

It is still too early to say that this scenario will play out, but S&P 500 earnings estimates for the next two quarters have recently moved higher, even though their expected year-on-year growth rates remain below the average pace seen in the first half of 2026. If Wall Street proves too conservative in its assumptions, and oil prices continue to decline, there could be room for both stronger earnings growth and higher valuations. That combination could support what has historically been a very strong final quarter of the year. Statistically, the period directly before and after U.S. midterm elections has also tended to be favourable for equities. If lower energy prices are accompanied by falling bond yields and reduced expectations for another Fed tightening cycle, markets could move closer to what is often described in the U.S. as a “Goldilocks” environment — a period of relatively favourable conditions driven by improving fundamentals and growing confidence in the strength of the market.

Analysts currently expect S&P 500 earnings to rise by around 28% YoY in Q3 and by just under 26% in Q4. These forecasts appear relatively conservative when compared with the pace of earnings growth seen in the first two quarters of the year. The hard data are worth looking at. Aggregate S&P 500 earnings for Q2 came in as much as 26.5% above prior market expectations. That surprise was well above the previous record of 23.2% set in Q2 2020 and roughly three times higher than long-term historical averages. Excluding the seven largest companies in the index, earnings for the remaining 493 S&P 500 companies still rose by almost 32% YoY. That is a very strong result and the fastest growth rate for this group since Q4 2021. As many as 10 of the 11 sectors also delivered results above pre-season forecasts, showing that the improvement in corporate performance is not limited only to the main AI beneficiaries.

What is more, S&P 500 valuations no longer look particularly demanding and are now broadly in line with long-term historical averages, which is relatively unusual during a bull market. The Q2 2026 earnings season is now almost complete and has clearly exceeded expectations from before the reporting period began. As many as 86% of S&P 500 companies reported EPS above analysts’ forecasts, while nearly 80% delivered positive revenue surprises, highlighting how broad the improvement has been. Aggregate earnings growth for the index currently stands at 52% YoY, while as recently as June 30 the market had expected growth of only 23.1%. Aggregate earnings from the so-called Magnificent 7 exceeded analyst expectations by 66.2%, and by almost 5% even after excluding one-off effects related to booked gains from Anthropic and SpaceX.

It increasingly looks as though Wall Street, consolidating near record highs, is trying to send a simple message: “It’s No Time To Die.”

Eryk Szmyd Financial Markets Analyst, XTB