Source: Jin10 Data

s&p 500 component companies will successively release their third-quarter financial reports this week. It is expected to have a slightly better-than-expected performance, but it will not lead to a significant increase in stock prices.

Earnings season will start from Tuesday, $PepsiCo (PEP.US)$ end on Friday. $JPMorgan (JPM.US)$ and $Wells Fargo & Co (WFC.US)$ Also, financial reports will be released.

According to FactSet data, analysts expect the earnings per share of S&P 500 companies to increase by 4.1% year-on-year, reaching slightly over $60. This expectation is realistic based on a 4.7% sales growth, considering the slowdown in economic growth and inflation to single-digit growth.

While product costs have not risen significantly, other expenses such as employee salaries continue to increase, restraining the improvement of corporate profit margins.

The technology industry is growing at the fastest pace. $NVIDIA (NVDA.US)$Still meeting strong demand for its artificial intelligence chips, which support AI-enhanced cloud computing services.$Microsoft (MSFT.US)$Monetizing through its AI cloud products, customers are willing to pay for them because it saves them costs.$Meta Platforms (META.US)$By using AI to increase user engagement, ad impressions, and fees charged to advertisers.

However, what hinders index returns growth are the 'cyclical' industries that are sensitive to the economy, as these industries have matured and their sales fluctuate with economic prospects.

Evercore expects earnings of financial, non-essential consumer goods, and industrial companies to slightly decrease year-on-year. Similarly, the performance of materials and energy industries is also poor, especially energy, due to a decrease in oil prices from the third quarter of last year.

The good news is that the company is likely to exceed expectations. This is normal; from financial crises to epidemics, businesses often exceed quarterly earnings expectations by a few percentage points, according to data. $Citigroup (C.US)$ The data shows.

In the second quarter of 2021,$S&P 500 Index (.SPX.US)$Earnings have exceeded expectations by more than 20% because the economy quickly recovered from 2020, with analysts holding a conservative outlook on forecasts. Subsequently, Wall Street grasped the direction of the economy and corporate profits, leading companies to quickly return to exceeding expectations by only a few percentage points.

This slight outperformance may not lead to a significant increase in the stock market.

The S&P 500 index has risen by about 20% this year. The double-digit increase reflects ongoing economic growth, with the Federal Reserve cutting interest rates to sustain expansion, and corporate profits continuing to grow.

Not only did large technology companies perform well, but every sector of the S&P 500 has seen gains this year.

This upward trend will push the S&P 500's forward P/E ratio to around 21 times, reaching a high not seen since the end of 2021 before the Federal Reserve's interest rate hikes.

If analysts see any reason to lower earnings expectations, such as concerns about demand in the company's outlook, the current index just above 5700 points would look like a 22 times P/E ratio. The market will face selling pressure, pulling back to more reasonable levels.

Even if businesses exceed profit expectations, analysts raising earnings will not have a significant impact on the stock market. If companies have a positive tone in their earnings reports or raise guidance, with earnings expectations growing by a few percentage points, stocks still appear expensive.

In other words, the expected earnings per share of the S&P 500 for the next four quarters is around $265. If this number is raised by 3% to reach $272, the index will still trade at a higher PE ratio of 21.

For example, Citigroup strategist Scott Chronert wrote: "Better-than-expected results and slight upward revisions have supported our earnings resilience argument, but valuations have changed. Overall, there is not much room for fundamental mistakes."

American companies are performing well, but it is not enough to drive their stock prices higher at the current level.

Editor / jayden