Futu Securities App noticed that the profit outlook of American companies has shown an unusual divergence: although analysts have lowered expectations, the company's guidance points to another strong quarter. Analysts expect the earnings of S&P 500 index component companies in the third quarter to increase by 4.2% compared to the same period last year, lower than the 7% forecast in mid-July. On the other hand, the guidance from these companies suggests around 16% growth.

BI's Chief Stock Strategist Gina Martin Adams said that this difference is 'unusually large,' and the notably stronger outlook indicates that 'companies should easily exceed expectations.'

She wrote in a report: 'With companies emphasizing efficiency in uncertain economic conditions, profit margins should continue to rise.' The momentum of EPS guidance has also turned positive, with a score of 0.14 for the three months ending in September, compared to an average of 0.03 after the COVID-19 pandemic.

Meanwhile, Citigroup's Profit Revision Index for September shows a strong negative trend, dropping to the lowest level since December 2022. Despite analysts' concerns, the S&P 500 index hit another record high last Friday, up 22% since the beginning of 2024, marking the best start to a year since 1997.

This indicates that investors are not deterred by the lowered forecasts but are betting that this quarter's earnings will once again bring positive surprises, much like in the first quarter when the expected growth was 3.8% and the actual result was 7.9%.

The new round of financial reporting season started off well. JPMorgan unexpectedly announced an increase in net interest income for the third quarter and raised expectations for this major source of income. The stock rose about 4.5% after announcing earnings on Friday, while Wells Fargo & Co. rose 5.6%, showing that the impact of falling interest rates is not as bad as feared.

Dan Morgan analyst Michael Wilson wrote in a report on Monday: "Before the financial reporting season, several large bank stocks had already been de-risked in mid-September, leading to lower performance expectations for this quarter. The preliminary results of the financial reporting season indicate that banks are surpassing these expectations."

Of course, there are also some warning signals. Earlier this month, Nike (NKE) readjusted Wall Street's expectations and withdrew its full-year sales guidance before new CEO Elliott Hill took office. At the end of September, FedEx's stock price plummeted after warning of a slowdown in business in the coming year.

Bank of America analysts Ohsung Kwon and Savita Subramanian wrote in a report last week: "Now that the easing cycle has begun, the main focus is on the outlook for companies at the other end of the curve." They lowered their 2024 S&P 500 index EPS forecast from $250 to $243." Expectations are not high. As long as companies can overcome macro headwinds and see early signs of improvement from rate cuts, stocks should be rewarded."

Investors' attention will eventually turn to the 'Big Seven' stocks that have been driving the stock market up this year, including Apple and NVIDIA. It is widely expected that the profits of these companies will grow by about 18% compared to the same period last year, a slower pace than the 36% growth seen in the second quarter. Since the second quarter earnings season, the stock prices of these companies have been underperforming. Despite the continued rise of the S&P 500 index, these companies have been consolidating sideways recently.

Wilson states: "The fundamental reason for the poor performance of the 'Big Seven' may simply be the slowing down of earnings growth from strong growth last year." "If profit revisions show that the tech giants are relatively strong, these stocks may perform well again, and the leadership of the S&P 500 may shrink - just like in the second quarter and throughout 2023."