There is a recurring pattern in financial markets that is as predictable as it is frustrating: when a genuine crisis emerges, the people whose job it is to price that crisis into their forecasts are almost always the last to do so. The Wall Street Journal’s examination of this phenomenon cuts to an uncomfortable but well-documented truth. Sell-side analysts — the army of equity researchers at investment banks who produce earnings estimates, price targets, and buy/sell recommendations — are structurally, psychologically, and professionally inclined toward optimism. And that optimism persists long past the point at which it is warranted.
The Iran war, now in its seventh week, is providing another live case study in exactly this dynamic.
The Numbers Tell the Story
When the US and Israel launched airstrikes on Iran on February 28, the impact on financial markets was immediate and severe. Oil surged past $100 a barrel for the first time since 2022. The S&P 500 fell nearly 8% from its January peak. Bond yields spiked as inflation expectations were repriced. The ISM services prices index jumped to its highest level since October 2022, with the 7.7-point monthly surge the largest in nearly 14 years. The University of Michigan consumer sentiment index fell to its lowest reading since the survey began in 1952. Gas prices hit $4 a gallon for the first time in nearly four years.
And yet, heading into earnings season in April, the Wall Street consensus was projecting S&P 500 earnings growth of over 12% to 16% for the first quarter of 2026 — one of the most optimistic consensus forecasts in four years. The projected year-over-year growth rate for Q4 2026 earnings per share sits at 16.6%, up from the 12.6% recorded in 2025. RBC Capital Markets’ charts of Wall Street’s earnings and margin outlooks show analysts painting a picture of continued strength — a bull market narrative that sits oddly against the backdrop of an oil shock, elevated inflation, consumer pessimism, and the disruption of a critical global shipping lane.
The gap between what the macroeconomic data is telling investors and what sell-side earnings estimates are implying is not a small one. It is the kind of gap that has a name in financial markets: it is called optimism bias, and it has been documented so consistently, across so many decades and so many market environments, that it no longer surprises the people who study it. It only surprises the investors who trust the consensus.
Why Analysts Are Always Late
The Wall Street Journal’s thesis on analysts being slow to recognise crises is grounded in a structural reality that begins with incentives. Sell-side analysts at investment banks are not disinterested truth-tellers. They serve multiple masters simultaneously: the institutional investors who pay for their research, the companies they cover (whose management teams they need access to), and the investment banking divisions of their own firms who may be seeking or maintaining relationships with those same companies.
Issuing a sell recommendation or dramatically cutting earnings estimates for a company is not a neutral act. It costs relationships, access, and sometimes business. The path of least resistance — and the path that most frequently gets taken — is to maintain a constructive view for as long as possible, revising estimates downward slowly and reluctantly as actual results force the issue.
Harvard Business School research has documented this pattern in detail. Sell-side analysts, the research found, universally tend to issue more optimistic forecasts for companies their firms do business with or hope to. But the optimism is not confined to explicitly conflicted situations. It is a baseline tendency of the profession. Studies examining over 1.6 million firm-analyst observations found that analysts placed greater weight on recent positive experiences and initial positive impressions, and were systematically slow to downgrade when fundamentals deteriorated. The tendency was described, in one CBS News account of the research, as analysts putting “their heads in the sand, like ostriches.”
The crisis-specific version of this problem is particularly acute. During a developing crisis — whether it is a financial shock, a pandemic, or a geopolitical energy disruption — the range of possible outcomes is genuinely wide. Analysts can credibly justify maintaining their estimates by pointing to uncertainty: we don’t know how long the conflict will last; we don’t know whether energy prices will normalise; we don’t know how much of the cost will be passed through to consumers versus absorbed in margins. This uncertainty, which should prompt humility and downward revision, instead becomes cover for holding a constructive view that was established before the crisis began.
The Iran War Version
The current earnings season is a perfect illustration. WD-40, the industrial grease maker, warned on its earnings call that higher oil prices from the Iran war would surge its input costs. Constellation Brands withdrew its fiscal 2028 guidance entirely as consumers navigated high prices everywhere. Delta Air Lines struck a cautious tone on fuel costs. These companies — operating in the actual economy, facing actual input price increases — are telling investors that the energy shock is real, persistent, and beginning to affect their businesses.
Meanwhile, the consensus earnings models built on pre-war assumptions remain broadly intact across most sectors. Analysts are waiting for more data. They are waiting for certainty about the war’s duration. They are revising individual company estimates in response to specific guidance, but they are not proactively repricing the macro risk across the board. That is what the WSJ is identifying: not individual incompetence, but a systematic tendency to lag reality when reality deteriorates faster than the consensus is willing to absorb.
The asymmetry is important. When markets recover — as they have in the past two weeks, with the S&P 500 erasing all its war-period losses — analysts’ bullish pre-existing estimates look validated, even though the underlying economic damage from six weeks of Hormuz disruption, elevated oil prices, and damaged supply chains has not been unwound. The ceasefire is fragile. The Strait of Hormuz remains effectively closed. Producer prices have already surged. Consumer sentiment is near a 74-year low.
The Deeper Problem
The WSJ’s observation points to something more troubling than just miscalibrated forecasts. When the buy-side community trusts sell-side consensus estimates to price risk, and those estimates are systematically slow to reflect crises, the result is that markets may themselves be slow to price genuine risk until it is impossible to ignore.
This has implications for investors trying to assess whether the current rally — driven by ceasefire optimism and strong bank earnings — is genuinely justified or whether it is front-running a resolution that has not yet occurred, using earnings estimates that have not yet been revised to reflect a world that changed on February 28.
RBC noted that Q2 and Q3 earnings at many companies could show meaningful pressure from oil prices and consumer caution that have not yet been built into current consensus estimates. A company reporting a “beats and raises” quarter in April may face a very different analyst outlook by July, once the secondary effects of the energy shock — higher logistics costs, lower discretionary consumer spending, margin compression across supply chains — start appearing in reported numbers rather than forward-looking warnings.
The Wall Street Journal’s argument is not that analysts are deliberately misleading investors. It is that the structure of the profession — the incentives, the relationships, the psychological attachment to narratives that have been working — makes slow recognition of crises the normal outcome. The Iran war, two months old and still unresolved in its energy market consequences, is the latest data point in that long and consistent pattern.
Written by Shalin Soni, CMA specializing in financial analysis, global markets, and corporate strategy, with hands-on experience in financial planning and analytical decision-making.
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Source: Based on The Wall Street Journal and publicly available information.
Disclaimer
This article is based on publicly available information, market developments, and credible media reports. The content is intended for informational and analytical purposes only and should not be considered financial, investment, or legal advice.