Company Earnings Bets Push Wall Street to New Record Highs: U.S. stock indices have reached new record highs
as investors focus on corporate performance and remain optimistic about a potential “soft landing” for the U.S. economy.
Without significant economic data this week, Wall Street focuses on earnings reports to drive market sentiment.
Content
Stock Indices Reach Record Levels
Solid Gains for Major Companies
Economic Data Supports Cyclical Stocks
Preparing for a Potential Setback
Bull Markets and Historical Shifts
Long-Term Bull Market Volatility
Weak Market Returns in the Third Year
Stock Indices Reach Record Levels
The S&P 500 index surged nearly 1%, marking its 46th record high.
Despite lower expectations for third-quarter earnings,
investors are betting on the potential for positive surprises during this earnings season.
Surpassing Expectations
Expectations indicate that companies in the S&P 500 may post their weakest results in the last four quarters,
with a year-on-year increase of only 4.3%.
However, corporate guidance suggesting a 16% increase indicates the potential for surpassing market expectations.
Kali Cox from Ritholtz Wealth Management noted that “Wall Street has underestimated American companies lately”
stressing that the most significant risk lies in missing out on the final gains and market recovery.
Solid Gains for Major Companies
The S&P 500 neared 5860 points amid low trading volumes.
The Nasdaq 100 climbed 0.8%, while the Dow Jones Industrial Average rose 0.5%.
Nvidia led the gains among major companies, with Apple benefiting from positive analyst calls,
while Tesla recovered after a dip last week.
Goldman Sachs and Citigroup shares also advanced in their earnings announcements.
While the dollar slightly strengthened, Bitcoin surged 5%.
In contrast, oil prices declined due to a lack of new incentives
from the Chinese Ministry of Finance to boost consumption in the world’s largest crude oil importer.
The Start of Earnings Season
Earnings season unofficially kicked off on Friday,
led by major financial firms like JPMorgan Chase and Wells Fargo.
Alongside other big banks set to report this week,
traders will closely watch results from key companies such as Netflix and J.B. Hunt Transport Services Inc.
Bank of America strategists said that in early third-quarter results last week,
U.S. companies benefited from lower interest rates at the start of the Federal Reserve’s easing cycle.
A Bank of America team led by Ohsung Kwon and Savita Subramanian noted that
easing interest rate pressures were evident in increased debt underwriting,
mortgage applications, and refinancing activity, alongside signs of stabilization in manufacturing.
Support for AI-Related Stocks
Solita Marcelli from UBS Global Wealth Management emphasized that third-quarter
results should confirm strong earnings growth for large-cap companies in a resilient economic backdrop.
Marcelli stated, “We maintain a positive outlook for U.S. equities,
supported by healthy economic growth, earnings expansion, and the Fed’s easing cycle, alongside the AI growth narrative.
” She added, “Although valuations are elevated, we believe they are justified given the favorable backdrop.”
Marcelli reiterated her price target for the S&P 500 at 6200 points by June 2025,
continuing to favor AI beneficiaries and high-quality stocks.
Economic Data Supports Cyclical Stocks
Mike Wilson from Morgan Stanley predicted that the improvement in U.S. macroeconomic data
would continue to support cyclical stocks tied to economic momentum.
Goldman Sachs strategists, led by Christian Mueller-Glissmann,
also noted that better U.S. data and supportive policies reduced near-term downside risks.
Preparing for a Potential Setback
Craig Johnson from Piper Sandler stated, “Last week, the S&P 500 surpassed our year-end price target of 5800 points,
and we are leaving it unchanged.
However, we recognize that some fine-tuning may be necessary,
as we expect stocks to continue their upward trajectory after the U.S. presidential election.”
Warning of a Future Setback
Despite solid gains in the first two years of this bull market,
Sam Stovall from CFRA cautioned investors to prepare for a potential setback in the next 12 months.
His analysis is based on historical data,
showing that the average return after 11 bull markets celebrating their second anniversary was just 2%
(5.2% excluding those that turned bearish before the end of the third year).
Bull Markets and Historical Shifts
Additionally, all past bull markets experienced a 5% decline,
with five enduring sell-offs exceeding 10% but less than 20%.
Three markets succumbed to new bear waves.
Despite these unsettling fluctuations, three bull markets posted double-digit gains.
Long-Term Bull Market Volatility
Bull markets that lasted this long tended to persist before finally facing a 20% decline.
However, according to Bespoke Investment Group, that doesn’t mean there were no hurdles along the way.
Weak Market Returns in the Third Year
According to Bespoke’s analysis, the S&P 500 saw weaker-than-average returns in the third year of bull markets.
On average, the index gained only 3.7% in the 12 months after the 503rd day of previous bull markets,
with positive returns in just 55%. By comparison, the average 12-month return for all markets was 9.26%.
Bespoke added that of the 11 bull markets analyzed, only two ended within the 12 months following day 503.
Thus, the period between the second and third year
of a long-term bull market has often been more of a consolidation phase than an endpoint.
Company Earnings Bets Push Wall Street to New Record Highs