Stocks have remained largely resilient in recent weeks despite reports of sticky inflation and risk that the Federal Reserve holds interest rates higher for longer than investors expect. Wall Street strategists believe that's likely due to a better-than-expected set of first quarter earnings.

With 80% of the companies in the S&P 500 (^GSPC) done reporting, the benchmark index is pacing for 5% growth in first quarter earnings per share, per FactSet. This is the biggest year-over-year increase since the second quarter of 2022 and higher than the 3.2% growth analysts had expected prior to the start of the season.

"Higher interest rates usually hurt U.S. stock valuations," Jean Boivin, the head of the BlackRock Investment Institute, wrote in a weekly note on Monday. "Instead, strong Q1 earnings have supported stocks even as high rates and lofty expectations raise the bar for what can keep markets sanguine."

Bullish strategists on Wall Street have been arguing that strong earnings growth has driven the index's roughly 8% rally so far this year and could possibly send stocks even higher.

"At a high level, this earnings period provides further support to our ongoing bullish view toward S&P 500 fundamentals, even as we navigate the Fed and underlying economic conditions," Citi's equity strategy team led by Scott Chronert wrote in a research note on Monday.

Net profit margins are pacing for 11.7% growth in the first quarter, above the five-year average of 11.5% growth and higher than the same period a year ago, per FactSet.

Largely, this has been driven by cost-cutting, not rising revenues. In 2023, investors cheered Big Tech's cost-cutting efforts that led to significant earnings growth. In 2024, companies outside the tech sector have tapped a similar playbook, setting up the rest of the index for earnings growth through the rest of the year.

Bank of America US and Canada equity strategist Ohsung Kwon told Yahoo Finance that in the "old economy," which excludes areas like technology, cutting costs will be a net positive for the S&P 500 as it sets up that area of the market for margin growth in the back half of this year. This would fuel the broadening of the market rally many have called for, with earnings growth for the other 493 stocks catching up to the so-called Magnificent Seven.

Perhaps the most notable move on the earnings front in the past month has come in second quarter outlooks. Thus far, 55% of the companies that have reported have given lower EPS guidance than analysts expected for the current quarter, well below the 10-year average of 63%, per FactSet.