Source: Jin10 Data
Nearly two-thirds of respondents expect the S&P 500 index to be boosted by corporate earnings reports, but technology giants are losing their appeal.
Although the recent decline in US stocks has raised concerns among some Wall Street professionals about a summer correction, respondents to Bloomberg's Markets Live Pulse (MLIV Pulse) survey expect the latest round of corporate earnings reports to revive the S&P 500 index.
Giants such as Tesla (TSLA) and Google parent company Alphabet (GOOL) will release their earnings reports in the next few days. Of the 463 respondents, nearly two-thirds expect this earnings season to boost the benchmark index of US stocks. About half of the respondents predict that corporate earnings reported in the coming months will be better than in the first half of this year.
Andrew Taylor, head of US market intelligence at JPMorgan's trading department, wrote in a client note that he expects positive earnings catalysts to lift the S&P 500 index out of its doldrums, especially as analysts' expectations for the earnings of the so-called 'big seven' signal 'another bountiful quarter'. These companies are expected to see a 30% YoY increase in earnings for the second quarter.
As the S&P 500 index starts to fall after experiencing a surge in the first half of the year, positive corporate earnings will become the driving force it urgently needs.
The market is currently under pressure to enter a seasonally weak period, while uncertainty surrounding the US presidential election may increase volatility.
With high valuations, especially for tech stocks, investors are also concerned. In view of this, about 70% of respondents said they have no plans to increase their holdings of large-cap US tech stocks in the second half of the year.
Last week, concerns about trade restrictions triggered a slump in chip stocks, and investors shifted from large-cap to small-cap, causing the tech sector to take a beating. Scott Rubner, Goldman Sachs' tactical strategist, believes that these fluctuations mark the start of a summer market correction, triggered by seasonal factors, tight positions, and the fact that all bullish news has been digested by the market.
However, Michael Sansoterra, CIO of Silvant Capital Management, believes that instead of calling the recent decline in US stock indices a 'slump', it is better to call it a 'change.' In his view, companies in the AI field are still spending, providing impetus for the development of AI and driving tech stocks higher.
Since 2019, Sansoterra has held Nvidia (NVDA) in at least one of the company's funds.
"We expect corporate earnings to be good. We expect this quarter to be similar to last quarter, where the same type of companies will be profitable for the same reasons," Sansoterra said.
Kevin Gordon, senior investment strategist at Charles Schwab & Co., said that corporate earnings "will help stabilize things, but I'm not sure it will be an epic catalyst. Historically, the current area of corporate earnings growth is in line with the S&P 500 index's moderate rise."
"This is not scary, but if you consider that the stock market's strongest gains often occur when companies recover from a recession, it makes sense. That period is over, so now that the earnings cycle is maturing, the market sees through it."
Dave Mazza, CEO of Roundhill Investments, said that the threshold for tech stocks' growth will be the highest. He remains positive about the overall market, but said, "Unless we see truly staggering business results, I don't think it's enough to offset this adjustment in the short term."
Despite intensifying headlines about the US presidential election, with Vice President Harris likely to replace President Biden as the Democratic nominee, most respondents said their stock positions were not dependent on the election outcome.
Bloomberg Intelligence strategists Gina Martin Adams and Michael Casper said the second half of election years has typically been supportive of the S&P 500 index. Their data shows that since 1928, the benchmark index has risen an average of 5.2% in the third quarter of election years, with a positive return rate of 62.5%.
The survey was conducted from July 15 to July 19 and included portfolio managers, economists, and individual investors.
Editor/Lambor