Wall Street Bets On Upcoming Earnings To Lift S&P 500 Amid Market Turmoils
2min read Despite the Wall Street professionals' worry about a looming summer correction caused by the recent downturn in the U.S. stock market, the latest survey shows that the upcoming earnings reports from several companies will revive the S&P 500 Index.
Tesla and Alphabet Inc., the parent company of Google, will release their earnings in a few days. Among the 463 respondents, nearly two-thirds predict that the earnings will boost the S&P 500 Index. About half of the respondents expect U.S. corporate earnings to perform better in the next few months than in the first half of the year.
At J.P. Morgan's trading department, Andrew Tyler, who is in charge of U.S. market intelligence, wrote in a research report to clients that positive earnings catalysts will lift the S&P 500 Index out of the doldrums, especially as analysts' expectations for the Mag Seven suggest another monster quarter. It is expected that the earnings of these seven giants will increase by about 29% year-over-year in the second quarter.
Optimistic earnings will become a much-needed driving force for the U.S. stock market, which has been consolidating after soaring in the first half of the year. The stock market is under pressure as it enters a seasonally weak period, and the uncertainty of the U.S. presidential election may exacerbate market volatility.
Overvaluation, especially of technology stocks, also worries investors. About 70% of respondents said they have no plans to increase their holdings of large U.S. technology stocks in the second half of the year.
Michael Sansoterra, Chief Investment Officer of Silvant Capital Management, believes the recent decline in U.S. stock indices is more of a change than a slump. In his view, companies in the artificial intelligence sector are still spending, which provides the impetus for generative artificial intelligence to boost technology stocks. Since 2019, Sansoterra has held Nvidia in at least one of the company's funds.
Sansoterra said, We expect earnings to actually go well. We expect the quarter to look more like the previous quarter, same types of companies beating for the same kinds of reasons.
Last week, investors shifted from large-cap stocks to small-cap stocks, and the technology sector suffered a significant setback. Scott Rubner, a tactical strategist at Goldman Sachs Group, believes this is the beginning of a summer correction, mainly due to seasonal weakness, overvaluation, and the fact that good news has already been digested.
Kevin Gordon, a senior investment strategist at Charles Schwab, said, Earnings can help stabilize things, but I'm not sure it will be an epic catalyst. The zone of earnings growth we're moving into is historically consistent with more tepid gains for the S&P 500.
He added, Nothing terrible, but it makes sense when you consider the fact that the strongest gains tend to happen as earnings are emerging from their recession. That already happened, so now with the earnings cycle maturing, the market is already looking through that.
Although news surrounding the U.S. presidential election has increased in recent weeks, with Vice President Kamala Harris potentially replacing Biden as the Democratic presidential candidate, most survey participants said their stock holdings are not dependent on the election outcome.
Strategists Gina Martin Adams and Michael Casper said that the latter half of election years has historically supported the S&P 500 Index. Their data shows that since 1928, the benchmark index has averaged a 5.2% increase in the third quarter of election years, with a positive return rate of 62.5% of the time.