Analysts may be underestimating the full economic impact of the ongoing conflict in Iran on corporate earnings, despite five weeks passing since hostilities began. While the S&P 500 index has experienced a modest decline of 3.9% since the onset of the war, some financial observers suggest that the market's reaction might not yet fully reflect the potential gravity of the crisis.

Several factors could contribute to this perceived lag in recognition. Psychologically, it can be challenging for investors and analysts to fully grasp the implications of unprecedented events, such as potential major disruptions or fuel shortages. Additionally, the standard practices of Wall Street analysts may be contributing to a delayed incorporation of these risks into financial models.

According to bottom-up data tracking S&P 500 companies, full-year earnings-per-share (EPS) forecasts have actually shown a slight increase since the conflict commenced. A breakdown reveals that forecasts for 131 companies have risen, while 103 have seen reductions. The remaining 268 companies' forecasts have either remained unchanged or shown minimal alteration.

Companies experiencing upward revisions in their forecasts are predominantly within the energy, refining, and chemical sectors, where increased demand or prices related to the conflict could boost profitability. Conversely, sectors most directly affected by disruptions, such as airlines and travel-adjacent businesses, have seen the largest reductions in their earnings outlooks. Certain individual companies, including Nike and Campbell's, also saw their forecasts cut following recent negative news.

However, a significant number of companies, including major multinational corporations with substantial global operations, have maintained static earnings forecasts. For instance, companies like McDonald's, with restaurants in affected regions and areas facing fuel shortages, and DoorDash, which is directly impacted by gasoline prices, have seen no change in their predictions. Other consumer-facing giants such as Mondelez, Chipotle, Starbucks, and PepsiCo also exhibit unchanged forecasts.

The reluctance to adjust forecasts often stems from how analysts operate. Many wait for management guidance, especially towards the end of a fiscal quarter. The most recently concluded quarter was not significantly affected by the early stages of the conflict. Furthermore, many companies have been in unofficial "quiet periods" ahead of upcoming earnings reports, making subtle communication to the investor community less common. Analysts are often hesitant to revise projections without direct signals from corporate executives, fearing potential repercussions.

As the earnings season approaches, many companies are expected to provide updated guidance and commentary on their investor calls. This period is anticipated to offer greater clarity on the conflict's financial implications across various sectors of the economy.