S&P rally faces test as earnings forecasts show divide
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The news: The third-quarter earnings season in the US is underway with a big divergence between company outlooks and analyst forecasts, Bloomberg reported.
The numbers: Analysts predict companies in the S&P 500 will post their weakest result in the past four quarters with an aggregate increase of just 4.2% in earnings, down from an expected 7% in July.
Company guidance, however, implies a 16% jump, according to the Bloomberg data.
The context: Earnings season will be a big test for the stock market’s USD9 trillion ($13 billion) rally this year.
JPMorgan and Wells Fargo on Friday kicked off the season on a positive note, with shares in both companies rising post-earnings.
JPMorgan stood out with a surprising rise in net interest income, a key measure reflecting the gap between what banks earn from loans and what they pay to depositors.
Investors and analysts remain cautious despite a market rally that has pushed the S&P 500 to a new record high on Monday, for a 22.79% gain this year, its strongest start to a year since 1997. They will be watching corporate earnings, particularly from tech giants like Apple and Nvidia, along with key economic data.
What they said: Gina Martin Adams, chief equity strategist at BI, said the dichotomy was “unusually large,” and the significantly stronger outlook suggests “companies should easily beat expectations.”
“Margins should keep marching higher as companies emphasize efficiency amid economic uncertainty,” she wrote in a note.
The source: Bloomberg
