FX168 Financial News Agency (Europe) reports on Tuesday (October 29) that according to Bloomberg, American companies have sent a significant signal this earnings season: the rise in the U.S. stock market may surpass the technology sector and further expand. According to data from Bank of America, the number of earnings reports mentioning a 'bottom' increased by 56% during this reporting period (ending last week), a proportion that has risen from the same period last year. The bank stated that historically, this manner of phrasing often indicates a broad improvement in profitability.

It is worth noting that cyclical companies occupy an important position among the reporting companies, and the prospects of these companies are closely related to the direction of the economy. If the earnings of this group begin to improve, it will be a positive signal for investors concerned about the dominance of technology stocks, as the market has already moved from one record to another this year.

With the average profit growth of large tech companies expected to slow down, this broad performance is particularly important. The performance of those giant companies will begin to be disclosed after the market close on Tuesday, when Google's parent company Alphabet will release its earnings report. 'We believe that the third-quarter profits of many cyclical companies represent a bottom,' said Joe Gilbert, portfolio manager at Integrity Asset Management. 'This does not mean that we will drastically increase earnings expectations, but it does give us confidence that the environment will not worsen.'

Cyclical industries have gone through a difficult period, as these companies had to deal with weak demand and high inventories after the Federal Reserve raised interest rates to the highest levels in decades to curb inflation. With central banks loosening policies and favorable economic conditions, the outlook for these companies is becoming clearer.

'Due to softness in the commodity/manufacturing sectors, companies have been operating in a weak demand environment for nearly two years,' strategists at Bank of America wrote in a report on October 28. 'But we see that the worst-case scenario may be behind us.'

'We expect that the manufacturing/commodity industries under pressure from high interest rates will achieve a healthy production recovery next year, which should translate into an increase in earnings per share.'

U.S. manufacturing activity shrank for the sixth consecutive month in September, reflecting weak orders and declining employment. However, more positively, a manufacturing industry survey by the Dallas Fed indicates that the ISM for October may rise, according to Bloomberg Economics' Chris Collins.

So far, the third-quarter earnings season in the industrial and materials sectors has shown a year-on-year decline, with the number of companies reporting results weaker than expected reaching the highest level since 2017, as reported by Bloomberg Intelligence's equity strategy data analyst Wendy Song.

In addition, cyclical industries face many risks, such as the uncertainty of the US presidential election and the speed of China's economic recovery.

However, there are also some bright spots. 3M, the manufacturer of Post-it notes and tapes, has raised the lower end of its 2024 profit outlook, and reported third-quarter earnings that exceeded analysts' expectations. According to Bloomberg Intelligence, Fastenal, a company selling industrial and construction supplies, showed sales improvement this quarter.

Some materials industry companies that rely on the global commodity cycle have also released positive financial reports. Strong aluminum prices have boosted quarterly earnings for aluminum company Alcoa Corp (AA).