US corporate profits are set to achieve their fastest growth rate in nearly three years, providing a substantial lift to the stock market as it approaches record levels in the latter half of the year.
Analysts project a robust 9% increase in earnings for the June quarter compared to the same period last year, marking the strongest growth since late 2021. This optimistic outlook is predominantly driven by expectations within the technology sector, particularly from industry leaders like Nvidia.
The upcoming second-quarter earnings season, starting with major banks reporting on July 12, is expected to reinforce market confidence. Despite geopolitical uncertainties related to upcoming elections in the UK, France, and the US, the S&P 500 has already surged nearly 15% in the first half of 2024.
David Kostin, chief strategist at Goldman Sachs, emphasized that the year-to-date rise in the S&P 500 has been driven by both earnings-per-share growth and price-to-earnings multiple expansion. He anticipates continued upward movement driven by solid earnings growth.
Analysts anticipate widespread profit increases across various sectors, with technology and communication services leading the charge, while materials and industrials may see declines. The six largest S&P 500 companies, including Amazon, Apple, Alphabet, Meta, Microsoft, and Nvidia, are expected to report a substantial 30% earnings growth, significantly outpacing other stocks.
However, concerns persist regarding the concentrated influence of these mega-cap stocks. Hong Li, head of US equity quantitative strategy at Citi, warned of potential volatility should any of these companies fail to meet expectations, given their significant impact on index-level earnings.
While opinions vary among analysts, with JPMorgan predicting a potential downturn to 4200 for the S&P 500 by year-end, other major investment banks such as Goldman Sachs and Bank of America maintain a bullish outlook, reflecting overall market optimism.
As the earnings season unfolds and geopolitical events continue to unfold, market observers will closely monitor corporate performance and investor sentiment, ready to gauge potential shifts in market dynamics as 2024 progresses.
