A robust outlook for Corporate America is helping underpin US stocks as inflation risks mount.
More analysts have raised rather than cut US earnings estimates for a 21st straight week, the longest run of upgrades since September 2021, according to a Citigroup Inc. index.
The trend sets up US firms for another bumper reporting season after one of the best quarterly showings on record. It has also boosted sentiment at a time when WTI prices are firmly above $90 a barrel and traders are bracing for a potential Federal Reserve rate hike next week.
While the stock rally has stalled in the past month, the S&P 500 Index remains roughly 1% below its record high.
“Micro, not macro drives stocks,” said Marija Veitmane, head of equity research at State Street Global Markets. “I continue to see strong earnings upgrades boosting investors’ appetite for stocks, and I don’t think this is euphoria and ‘head in the sand’ behavior.”
Keith Parker, head of global macro equity strategy at UBS Group AG, noted that expectations for S&P 500 earnings next year have been raised by almost 4% in the past two months alone. “That’s highly unusual and signals the robustness of recent US earnings across multiple sectors.”
The bond market has been back in the driving seat for stock investors recently. Equities generally come under pressure from higher yields as they increase borrowing costs and reduce the value of future earnings. This time around, however, the rise has been accompanied by stronger economic growth, suggesting stocks can digest higher rates.
Other market participants also see further gains from the artificial intelligence boom. Willem Sels, the global chief investment officer at HSBC Private Bank, said US stock valuations are still failing to capture the scale of AI-driven productivity benefits.
This article was provided by Bloomberg News.