Earnings Optimism Gains Momentum as Profit Downturn Nears End

According to recent reports, analysts are increasing their earnings forecasts for the current quarter at the fastest rate in two years, indicating that the worst of Corporate America’s profit downturn may be behind us. Nearly 90% of S&P 500 Index companies have already reported for the current earnings season, and upbeat first-quarter results have prompted Wall Street to raise profit projections for the upcoming quarter, as noted by Bloomberg Intelligence data. The benchmark index for American stocks is projected to yield 7.1% earnings growth during the January-March period, surpassing preliminary estimates of 3.8%. This trend is largely attributed to the resurgence of two key sectors – energy and materials – which have contributed significantly to earnings growth. A closely monitored indicator known as earnings-revision momentum has also reached its peak level since September, suggesting that more upward revisions are likely to materialize in the near future, according to Wendy Soong, a senior analyst at Bloomberg Intelligence. However, despite these optimistic signs, the economic landscape shows some worrying developments, such as rising unemployment rates and reduced job creation figures. Analysts predict that the overall earnings forecast for the year 2024 remains unchanged, with a projected income of approximately $245 per share for companies listed in the S&P 500, which is marginally different from the previous year’s estimate. Companies are scheduled to release their earnings reports over the next few weeks, including major retailers such as Home Depot, Walmart, Target, and Nvidia. As per historical records, stocks typically react negatively to weaker-than-expected forecasts, particularly concerning earnings per share (EPS) and sales, resulting in underperformance compared to the S&P 500 by almost 7% within a single day. Investors will closely monitor these reports to gain insights into consumer strength, economic growth, and business profitability.