A XM não fornece serviços a residentes nos Estados Unidos da América.

Q2 Earnings season: A strong test for stretched valuations – Stock News



  • Earnings parade unofficially starts on July 12 with major US banks

  • S&P 500 profit growth forecast at 10.6% y/y, all eyes on tech results

  • Asymmetric risks due to rosy valuations and optimistic earnings projections

Stellar first half

Undoubtedly, the US stock markets had another astonishing quarter and a roaring first half of the year as the US economy seems to be headed for a soft landing. It has been more than 21 months now since the stock market experienced a sizable correction, but the historically low volatility suggests that investors have not been actively positioning for a pullback.

Heading into the year, speculation around the Fed’s interest rate cuts was the main force behind the equity market rally. However, as growth in the US economy kept surprising to the upside, the torch got carried by the solid corporate performance of the AI darlings. For that reason, the upcoming Q2 earnings season could act as a reality check for the relentless stock market uptrend.

What’s expected?

For the second quarter of 2024, S&P 500 earnings are projected to increase by 10.6% on an annual basis, according to LSEG estimates. Communication Services and Health Care sectors are expected to be the relative outperformers, with their earnings expected to grow by 21.7% and 20.2% year-on-year, respectively. In contrast, Real Estate and Materials are set to have the biggest earnings declines from a year ago.

Although all sectors of the economy are important, investors will probably be a little more focused on big tech companies as their performance has been mostly responsible for the ongoing rally. Hence, any signs of weakness in other sectors might be masked if the tech industry continues to fire on all cylinders, while the opposite seems highly unlikely.

Asymmetric risks due to inflated valuations

US indices’ trip to successive record highs has pushed valuations to extremely high levels. Currently, the S&P 500 is trading at 21.2 times what analysts project earnings to be over the next twelve months. Markets are forecasting a blended earnings growth of 10.7% in 2024, even though monetary conditions are expected to remain tight amidst fears of a secondary inflation wave.

Considering that such multiples have been evident only during the dot-com bubble and pandemic years, it could be argued that we might currently be in a bubble. Till now, stocks have been edging higher as earnings keep surpassing estimates, but a series of downbeat surprises or weak guidance from tech giants could send those multiples through the roof.

The key difference between recent earnings seasons and the current one is that expectations are now set higher. Hence, with stocks already being priced for perfection, there is ample downside potential in case fundamentals fall short of expectations.

Verdict

Clearly, at current levels, the risk-to-reward profile for stocks seems unattractive. Moreover, it has been ages since equities last experienced a pullback, which is an important aspect of a healthy uptrend. Therefore, risks are clearly tilted to the downside, while a massive financial outperformance might be needed for investors to increase their equity exposure.

Isenção de Responsabilidade: As entidades do XM Group proporcionam serviço de apenas-execução e acesso à nossa plataforma online de negociação, permitindo a visualização e/ou uso do conteúdo disponível no website ou através deste, o que não se destina a alterar ou a expandir o supracitado. Tal acesso e uso estão sempre sujeitos a: (i) Termos e Condições; (ii) Avisos de Risco; e (iii) Termos de Responsabilidade. Este, é desta forma, fornecido como informação generalizada. Particularmente, por favor esteja ciente que os conteúdos da nossa plataforma online de negociação não constituem solicitação ou oferta para iniciar qualquer transação nos mercados financeiros. Negociar em qualquer mercado financeiro envolve um nível de risco significativo de perda do capital.

Todo o material publicado na nossa plataforma de negociação online tem apenas objetivos educacionais/informativos e não contém — e não deve ser considerado conter — conselhos e recomendações financeiras, de negociação ou fiscalidade de investimentos, registo de preços de negociação, oferta e solicitação de transação em qualquer instrumento financeiro ou promoção financeira não solicitada direcionadas a si.

Qual conteúdo obtido por uma terceira parte, assim como o conteúdo preparado pela XM, tais como, opiniões, pesquisa, análises, preços, outra informação ou links para websites de terceiras partes contidos neste website são prestados "no estado em que se encontram", como um comentário de mercado generalizado e não constitui conselho de investimento. Na medida em que qualquer conteúdo é construído como pesquisa de investimento, deve considerar e aceitar que este não tem como objetivo e nem foi preparado de acordo com os requisitos legais concebidos para promover a independência da pesquisa de investimento, desta forma, deve ser considerado material de marketing sob as leis e regulações relevantes. Por favor, certifique-se que leu e compreendeu a nossa Notificação sobre Pesquisa de Investimento não-independente e o Aviso de Risco, relativos à informação supracitada, os quais podem ser acedidos aqui.

Aviso de risco: O seu capital está em risco. Os produtos alavancados podem não ser adequados para todos. Recomendamos que consulte a nossa Divulgação de Riscos.