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标普500“七巨头”盈利增速再次放缓,但其余493家公司盈利有望增长?

The earnings growth rate of the seven giants of the S&P 500 has slowed down again, but the profits of the other 493 companies are expected to increase?

wallstreetcn ·  Jul 10 22:43

Bank of America Merrill Lynch believes that, except for the "Seven Sisters" in the S&P 500's Q2 earnings report, other 493 companies are expected to break the trend of no growth in the past five consecutive quarters, and the growth of the "Seven Sisters" is expected to slow for the second consecutive quarter. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

Bank of America Merrill Lynch stated in its latest research report on July 9th that, as Q2 earnings season opens,$S&P 500 Index (.SPX.US)$Other than the "Seven Sisters" in the S&P 500, other 493 companies are expected to see their first EPS growth quarter, breaking a five-quarter trend of flat or declining EPS.

The growth of the technology stocks'"Seven Sisters" is expected to slow for a second consecutive quarter, and to slow again in Q3. The narrowing of this growth differential will become a catalyst for market expansion.

Bank of America Merrill Lynch believes that considering the profit cycle of non-tech stocks, more cost-cutting efforts will bring better profit margin growth space to other 493 companies in 2024-25.

493 companies will usher in their first EPS growth quarter

Bank of America Merrill Lynch believes that other than the "Seven Sisters" in the S&P 500, the other 493 companies in the Q2 index will usher in their first EPS growth quarter.

In contrast, the EPS of S&P 500 index has grown year-on-year for three consecutive quarters, while the profits of other 493 companies have remained flat or declined in the past five quarters.

On the other hand, the growth of the technology stocks' "Seven Sisters" is expected to slow for a second consecutive quarter, which Bank of America Merrill Lynch believes will narrow this growth differential and become a catalyst for market expansion.

Bank of America Merrill Lynch believes that one reason why the profits of the technology stocks' "Seven Sisters" recovered earlier than the other 493 companies is that the technology giants first entered a profit decline in the second half of 2022. Profit decline led technology companies to cut costs earlier than other companies, thus achieving earlier recovery.

Since the beginning of the year, job cuts in the technology sector have slowed significantly, while those outside the technology sector have increased, indicating that there is still room for more cost cutting outside the sector. Analysts believe that cost-cutting efforts will bring better profit margin growth space to other 493 companies in 2024-25.

AI investment is forming a virtuous cycle

Bank of America Merrill Lynch said that large technology companies such as Apple, Google, and Meta confirmed the company's view that 2024 would be the first year of a multi-year AI investment cycle. During Q1 earnings season, the consensus expected capital expenditures for the four companies in 2024 increased by $18 billion to about $200 billion, a year-on-year increase of 34%.$Microsoft (MSFT.US)$, $Amazon (AMZN.US)$, $Alphabet-A (GOOGL.US)$, $Meta Platforms (META.US)$The company affirmed last quarter that 2024 will be the first year of a multi-year AI investment cycle.

Although history has shown that companies in reinvestment cycles perform poorly, AI investment currently forms a potential virtuous cycle. Semiconductors are the most obvious beneficiaries, and AI-driven increases in electricity usage and physical construction of data centers should lead to increased demand for electrification, construction, public utilities, commodities, and ultimately create more job opportunities.

Technology stocks carry hope for profit growth

The current optimistic market expectation is to achieve an 11% year-on-year EPS growth in the second half of the year. However, excluding the "Seven Sisters," the consensus expected sales growth is only 1%. Although the expected EPS growth of 14% in the fourth quarter seems high, more than 60% of the growth (ie nine percentage points) comes from the "Seven Sisters."

The current optimistic market expectation is to achieve an 11% year-on-year EPS growth in the second half of the year. However, excluding the "Seven Sisters," the consensus expected sales growth is only 1%. Although the expected EPS growth of 14% in the fourth quarter seems high, more than 60% of the growth (ie nine percentage points) comes from the "Seven Sisters."

Although the expected EPS growth of 14% in the fourth quarter seems high, more than 60% of the growth (ie nine percentage points) comes from the "Seven Sisters."

Although a 14% EPS growth in the fourth quarter looks high, over 60% of the growth (i.e., nine percentage points) comes from the "Seven Sisters".

Despite adverse macroeconomic conditions, the overall profit expectation is higher.

Bank of America Merrill Lynch said U.S. companies had a strong first quarter, with EPS exceeding expectations by 3%. However, after that, the macro economy weakened. The Economic Surprise Index (ESI) is now at its lowest level since June 2015.

Meanwhile, due to the impact of a strong U.S. dollar, it is expected that forex sales will have a negative impact of 100 basis points on U.S. stock companies, the largest blow since the first quarter of 2023.

Considering the lower base of a 6% YoY decline in the second quarter of 2023, the current market consensus expects an increase of 9% YoY in EPS for U.S. stock companies in the second quarter.

Although macro data has just started to slow down, U.S. stock companies have been operating in a weak demand environment for the past two years due to the weakness of commodities/manufacturing. The number of mentions of weak demand during earnings conference calls skyrocketed in the second half of 2022 and continued to be one standard deviation above the historical average for the seventh consecutive quarter. Bank of America Merrill Lynch believes that unless demand deteriorates further from here, U.S. stock companies have probably adapted to the weak demand environment through cost cutting and efficiency improvement.

The impact of inflation is limited.

Inflation has historically been a lagging indicator of profit. The correlation between S&P 500 index earnings and inflation lags behind CPI and PPI by five and three quarters, respectively.

Pessimists in the market believe that deflation is increasingly affecting profits, as profits are nominal and higher inflation drives stronger profit growth. However, there is no statistical evidence to support this view. Although sales are strongly correlated with both CPI and PPI (with PPI having higher correlation), neither has any correlation with profit growth. Correlation with actual GDP (i.e. demand) is highest.

The destocking cycle is ending soon.

Bank of America Merrill Lynch believes that the past 18-24 months have been one of the most severe destocking cycles in history. The decline in the days of inventory sales (DSI) of the S&P 500 index is comparable to the first three recessions. However, DSI rebounded from its lows for the third consecutive month in June, down 1% YoY, indicating that the destocking cycle may be ending soon.

In addition, the ratio of new orders to inventories in the ISM manufacturing PMI rebounded in June, reversing the declining trend from January to May 2024. The improved trend in orders, along with continuously falling inventory levels, indicates that the inventory cycle is slowing down.

Edited by Jeffrey

The translation is provided by third-party software.


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