Rise in U.S. Stock Indices as Earnings Season Begins: A selling wave worth two trillion dollars led to a rise in U.S. stock indices on Wall Street.
Investors are pinning their hopes on whether major technology companies
will meet high expectations for artificial intelligence during the busiest week of the earnings season.

Content

The Tech Giants

Confidence in Earnings

Challenges Facing S&P Returns

Analysts Opinions

Important Week for Markets

No Reason for Worry

The Tech Giants

Approximately 180 companies listed in the S&P 500 index,
representing more than 40% of its market value, are set to announce their earnings this week.
High stakes for the companies known as “The Tech Giants,”
According to Bloomberg Intelligence, there is expected to be a 40% increase in profits from last year.

Focus on earnings comes after a decline fueled by geopolitical concerns,
indicating that the Federal Reserve will not rush to cut interest rates.

Matt Maley from Miller Tabak + Co. said, “Exceeding agreed-upon earnings estimates will not be sufficient.
We will need to see much better guidance from American companies
if the stock market is expected to resume its progress.”

Strategists at the largest banks on Wall Street are divided over
whether companies are capable of providing strong forecasts.
While Michael Wilson from Morgan Stanley expects profit growth to improve with the economy boosting,
his counterpart at J.P. Morgan Chase, Mislav Matejka,
sees ongoing inflation, a strong dollar, and geopolitical tensions overshadowing the outlook.

Confidence in Earnings

Nearly two-thirds of participants in the Bloomberg Markets Live poll,
which included 409 individuals, indicated they expect earnings to boost the U.S. stock index.
This represents the highest vote of confidence in earnings since the question was first asked in October 2022.

The S&P 500 index surpassed the 5000-point level, halting a six-day decline.
The Nasdaq 100 index rose by 1%, led by Nvidia in the gains among large technology companies.
Apple was named Bank of America’s top pick for 2024 due to optimism about its upcoming results.

Treasury bonds fluctuated before a wave of bond auctions
that will test investor appetite after yields reached their highest levels in 2024.

Hedge funds have returned to buying global stocks at the fastest pace in two months,
ignoring broader market volatility, in order to get a share of technology stocks,
according to Goldman Sachs‘ trading desk.

New buying positions exceeded short-selling last week,
while individual stocks experienced “the largest virtual buying in over a year,”
According to traders’ notes, there is an upward shift in sentiment after three weeks of selling by hedge funds.

According to BlackRock Investment Institute’s weekly commentary,
American earnings updates will be crucial to see if they can continue
to enhance risk appetite in an environment of higher interest rates for longer.

The institute noted it would increase “the weight of U.S. stocks,
seeing the theme of artificial intelligence expand.”

Challenges Facing S&P Returns

According to Megan Horneman from Verdence Capital Advisors,
the challenge facing the S&P 500 returns in the current
In earnings season, companies must announce profits and forecasts supporting already high multiples.

Marco Kolanovic from J.P. Morgan suggests that market sell-offs are likely to continue,
while price movements may depend on earnings and could stabilize in the near term.

He added, “We are still concerned about continued satisfaction with stock valuations,
persistently high inflation, further repricing of interest rate cuts by the Federal Reserve,
and earnings forecasts, as this implicit acceleration this year
may discover we were more optimistic than we should have been.”

Analysts Opinions

Christopher Larkin from ETRADE at Morgan Stanley noted,
“Concerns about rising interest rates, stubborn inflation,
and geopolitical risks are not going anywhere, but this week,
the technology sector might be the deciding factor.”

Indeed, Bank of America Corp. strategists say the risks are significant
for large American technology companies to start fulfilling their promises in artificial intelligence,
their profits approaching a slowdown.

Companies like Apple, Alphabet, Meta, and Tesla are announcing their results this week,
beginning the earnings of what is called “the Tech Giants”

A team from Bank of America, including Oh Sung Kwon and Savita Subramanian,
wrote in a note, “With artificial intelligence considered key to future earnings,
its contributions to the earnings mix are the main focus for traders.”

According to Jonathan Golub from UBS Group,
the strength of large technology companies is running out,
as the sector’s previously enjoyed earnings momentum is slowing down.

Golub downgraded his recommendation on the “big six” technology stocks
Apple, Alphabet, Amazon, Meta, Microsoft, and Nvidia—to neutral,
noting that “earnings momentum is definitely turning negative after a rise in earnings growth.”

According to strategists at Citigroup, U.S. stocks are supported by corporate fundamentals,
but rising implicit growth

expectations and sentiments are now acting as headwinds.

The team led by Scott Chronert predicts a 76% likelihood of exceeding first-quarter earnings consensus.
However, the probability of earnings growth drops to 49% for the remainder of 2024,
suggesting that companies may be cautious about raising guidance.

Important Week for Markets

According to Jeremy Strope from Coastal Wealth, this week is important for markets.
Major technology company earnings and key inflation data on Friday
can potentially redefine the market’s path in the near term.

He noted, “If the earnings of major technology companies and the inflation data released
on Friday are disappointing, it could extend the duration and depth of the current market correction.”
He added that he remains optimistic for 2024, although there may be more room for the market to decline.

No Reason for Worry

Recently, reduced expectations for the start of interest rate cuts have shaken the U.S. stock market.
However, history shows there may be no reason to worry: if the past is an indicator,
then stock market performance is likely good in an era of higher interest rates for longer.

During previous periods that saw high bond yields,
the S&P 500 recorded an average price return of 13.9%,
compared to an average profit of 6.5% during times when interest rates were falling,
according to data from BMO Capital Markets dating back to 1990.

Anthony Saglimbeni from Ameriprise said,
“We believe that stronger-than-expected growth trends in the U.S.
recently should be positive for the economy and corporate profits, at least during the first half of this year,”
adding, “However, the price paid for this strength
may be high inflation and higher interest rates for longer than expected at the start of the year.”

Rise in U.S. Stock Indices as Earnings Season Begins

Rise in U.S. Stock Indices as Earnings Season Begins

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