Source: Jin10 Data
Many strategists believe that in order to maintain the record-breaking rally, the US stock market may need another 'explosive' earnings season.
To maintain the record-breaking rise of US stocks, American listed companies may need to create another explosive quarterly profit report, according to some Wall Street analysts.
According to an index from Citigroup, analysts have raised profit expectations more than they have lowered them entering the second earnings season. At the same time, data compiled by foreign media shows that earnings expectations for the next 12 months for American stocks have reached a historic high.
"Given lofty growth expectations, the market may need to see even higher growth expectations for US stocks to maintain the recent rally or move higher," Citigroup strategist Scott Chronert wrote in a report. "The problem, however, is that valuations suggest buyers are already demanding more."
The second quarter earnings season will officially begin on July 12, with JPMorgan leading the way in releasing its earnings report. Since its low point last October, the S&P 500 index has risen approximately 35%, driven by the artificial intelligence boom and bets on the Fed's interest rate cuts, hitting more than 30 historic highs this year.
However, this has also led to more expensive valuations, with the S&P 500 index's P/E ratio approaching 22, far higher than its long-term average of 16.
According to data compiled by foreign media, investors were rather lukewarm about the first quarter earnings season. The data shows that more than 80% of S&P 500 index companies exceeded earnings expectations, but the median performance of these companies on earnings day was 12 basis points lower than the market.
Goldman Sachs strategist David Kostin said in a recent report that this trend may repeat in the second quarter. His team estimates that profit growth expectations will hit the highest level in nearly three years, while investor sentiment is at a high. He said:
"As a result, this quarter's excess returns may be below average, even though they won't be as extreme as they were during the first quarter earnings season."
However, John Stoltzfus, a strategist at Oppenheimer Asset Management, said strong profit prospects and economic resilience could support higher valuations for US stocks. Stoltzfus raised his year-end target for the S&P 500 index to 5,900 points, the second-highest among foreign media-tracked strategists. His forecast implies 6% growth potential for US stocks compared to current levels.
Editor / jayden