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A ‘Robust’ Earnings Outlook Is Driving Even More Optimism for Stocks in 2024
The perspective for the most important engine of the stock market It’s getting better and better.
S&P 500 (^GSPC) profits grew 6% in the first quarter from a year ago, according to data from FactSet. When excluding dismal Bristol Myers-Squibb earnings (BMI), the results were even better, with profits growing 10%, according to Bank of America.
This comes at a time when earnings estimates for future quarters are also rising. The consensus now sees profits growing 11.4% in 2024, up from the 10.9% projection on April 5. In 2025, earnings growth estimates rose to 14.2% in 2025 from the 11.6% growth seen that day.
On Tuesday, UBS Investment Bank U.S. equity strategist Jonathan Golub raised his year-end target for the S&P 500 to 5,600 from 5,400, citing “stronger earnings.”
“Although subsequent quarter earnings estimates typically decline during earnings season, [second quarter] the estimates were also quite robust,” Golub wrote. “A similar pattern is also evident in the full-year 2024 estimates. All of these trends further support market growth.”
Profits are one of several reasons why Wall Street strategists have increased their year-end S&P 500 targets. Golub and others noted that economic “tail risks” have diminished, with Consensus estimates for economic growth increasing throughout the year.
Deutsche Bank chief global strategist Binky Chadha recently told Yahoo Finance that higher-than-expected growth in the economy could help the S&P 500 reach 6,000 by the end of the year. But for its current target of 5,500, a large part of the argument is based around earnings growth that is “accelerating and continues to accelerate.”
“We see the earnings cycle will have many legs,” Chadha wrote in a research note raising his year-end target for the S&P 500 from 5,100 on May 17 to 5,550. “While all the growth may not materialize this year, we see market confidence in a continued recovery increasing through the end of the year, supporting equity multiples.”
Chadha, like other strategists, was looking for a rotation in earnings growth starting in the first quarter, as Big Tech’s growth begins to slow and other areas recover. This did not happened. A basket of stocks that Chadha tracks called “Mega-Cap Growth and Tech” grew about 39% year-over-year, roughly flat to the 40% year-over-year growth seen in the previous quarter.
This is not a problem in itself, according to Chadha. He believes the robust earnings growth seen in this group, which includes the “Magnificent Seven” technology stocks, among some other big names like Netflix (NFLX), Visa (V) and Adobe (ADBE), is “extremely likely to slow down at some point.” And this will happen as positive developments are emerging in other sectors of the market.
The story continues
Earnings for cyclical and defensive companies grew 7.5% in the first quarter, which Chadha noted was “healthy.” Other strategists believe a similar recovery scenario is likely to play out in earnings growth during the rest of this year.
Bank of America US and Canadian equity strategist Ohsung Kwon highlighted in a recent research note that Nvidia has driven 37% of the S&P 500’s earnings growth over the past 12 months. Over the next 12 months, it is expected to represent just 9%.
“We no longer think it’s just about Nvidia,” Kwon told Yahoo Finance. “Things are broadening out… into energy, commodities, utilities, things like that.”
Strategists like Kwon say the most notable point in the stock’s fundamental story was the cost reduction that drove profit growth, not the increase in demand and rising revenue. Kwon and Bank of America remain firm in their belief that this situation will change later this year, as companies in the industrial sector have signaled that they believe they have reached the trough of declining demand in their cycle.
“In the second half of the year, we will start to see demand recover,” Kwon said. “And with that we will see operational leverage and better margins.”
Charles Schwab senior investment strategist Kevin Gordon noted that this will be an important trend for investors throughout the year. In the first quarter, companies that beat revenue estimates outperformed those that just beat earnings estimates.
For Gordon, this was the market that highlighted companies that were simply increasing profits by reducing costs.
“The market tends to sniff [cost-cutting] say at some point, OK, now we have to actually see real demand come back online,” Gordon told Yahoo Finance.
Traders work on the floor of the New York Stock Exchange (NYSE) on January 29, 2024, in New York City. (Spencer Platt/Getty Images) (Spencer Platt via Getty Images)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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Breakfast on Wall Street: The Week Ahead
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
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Trump shooting: Gold could hit record high, dollar and cryptocurrencies set to jump
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Latest Business News Live Updates Today, July 11, 2024
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Thu, 11 Jul 2024 08:44 PM
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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