US Stocks: Dow 40,000, S&P 500 Tops 5,300, Bullish Earnings Signal
As Corporate America wraps up its earnings season, a positive trend emerges: many companies indicate that the worst of last year’s profit challenges is behind them. With 90% of quarterly reports now available, the per-share earnings of S&P 500 companies have increased by 7.3% in the first quarter of 2024. This growth trajectory positions them for the second-best profit expansion in two years, excluding charges from major pharmaceutical companies, where profit growth stands at an impressive 10.5% – marking the strongest performance since late 2021.
Brooke May, managing partner at Evans May Wealth, notes, ‘Most of the earnings growth has been attributed to Big Tech once again, but broader participation is improving, signaling further potential for stock market advancement. While stock valuations may appear slightly elevated, this anticipation aligns with the expected robust earnings growth in the upcoming quarters.’
The optimistic outlook gains momentum as corporate leaders regain confidence in a resilient economy capable of supporting stock market upswings alongside the sustained profit growth for a third consecutive quarter. However, despite this positive sentiment, analysts’ earnings projections for the entirety of 2024 have shown minimal movement, hovering around $245 per share. The critical question now revolves around the ability of chief financial officers to sustain this profitability level amidst persistent inflationary pressures and subdued profit forecasts.
Key Takeaways from the First Quarter:
- Big Tech Driving Growth: The earnings from major technology companies continue to spearhead profit expansion within the S&P 500, leveraging robust margins that have reignited optimism in the stock market following a lackluster April start. The upcoming earnings report from artificial intelligence frontrunner Nvidia Corp. next week will be closely monitored as the final installment from the ‘Magnificent Seven’ companies. Projections indicate a 49% surge in profits for this group – comprising Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Tesla Inc., and Nvidia – in the first quarter. In contrast, excluding these firms, the remaining index profits are poised to contract by 1.4%. Nevertheless, from the second quarter onwards, the net-income growth of the S&P 500 is anticipated to be positive even in the absence of Big Tech contributions.
- Increased Reinvestment: A notable highlight of this earnings season has been the uptick in buybacks and dividends from tech entities, presenting a favorable signal that could propel the subsequent phase of the stock market rally. Notably, Apple’s announcement of the largest US buyback initiative and similar moves from other technology companies underscore a strategic focus on reinvestment and shareholder value enhancement.
