Good News!Corporate Profits Reach Bottom, Start Rebound

Corporate America is signaling that the rally in U.S. stocks could extend beyond just technology shares this earnings season. With the central bank easing and the economy performing well, the outlook for many companies is improving.

According to Bank of America, mentions of a "bottom" in earnings reports this season have risen by 56% compared to a year ago. Historically, such references have preceded broader improvements in earnings.

Notably, cyclical companies—those whose prospects closely align with the economy—are well represented among those reporting. If earnings in this sector begin to improve, it would be a positive development for investors concerned about the current tech-heavy market, which has seen a series of record highs this year.

Joe Gilbert, a portfolio manager at Integrity Asset Management, stated, "We feel that third-quarter earnings for many cyclical companies represent a bottom. This doesn't mean we're poised for a surge in earnings estimates, but it does give us confidence that the situation isn't likely to worsen."

Bank of America strategists noted in an October 28 report that companies have faced weak demand for nearly two years due to challenges in the goods and manufacturing sectors. However, they see signs that the worst may be behind us. They anticipate a healthy recovery in these sectors next year, which should boost earnings per share.

Consumer Sentiment Reinforces The Objectivity

U.S. consumer sentiment reinforces this perspective. The University of Michigan's final October sentiment index rose to 70.5, up from 70.1 in September and a preliminary reading of 68.9

Expectations for income increased to their highest level since June, and respondents expressed greater optimism about the job market, with over half anticipating further interest rate relief this year. This suggests that consumer spending will remain resilient, supporting the economy.

Strong consumer confidence can drive increased spending, leading to improved profits for public companies, creating a positive feedback loop. Rising profits will likely reflect in stock prices, which remains the main theme for investing in the U.S. market.