{"id":7469,"date":"2023-07-13T20:00:00","date_gmt":"2023-07-14T00:00:00","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-asia\/insights\/adding-some-perspective-to-the-stock-market-rally"},"modified":"2024-07-29T15:46:07","modified_gmt":"2024-07-29T19:46:07","slug":"adding-some-perspective-to-the-stock-market-rally","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-asia\/insights\/adding-some-perspective-to-the-stock-market-rally","title":{"rendered":"Adding some perspective to the stock market rally"},"content":{"rendered":"\n

Lately we think the message emanating from the market has been that S&P 500 profits are at the cusp of an inflection point, and that Q2 earnings results \u2013 which companies started reporting this week in earnest \u2013 will be the trough quarter. <\/p>\n\n\n\n

The S&P 500 has rallied about 10 percent since early May and has clawed back to its highest level since April 2022. The market has advanced as the pace of downward revisions to consensus earnings estimates has slowed notably, and as inflation has receded and economic concerns have eased among investors. <\/p>\n\n\n\n

While much of the market\u2019s year-to-date gains have been dominated by seven large technology-oriented stocks, performance has broadened out to other sectors and industries since early June \u2013 another sign that a change could be brewing on the earnings front. <\/p>\n\n\n\n

Is the market painting too rosy a picture?<\/p>\n\n\n\n

We think the U.S. economy\u2019s growth trajectory will be the ultimate arbiter. Projected 2024 earnings gains are highly dependent on whether the economy manages to avoid a recession, in our view. <\/p>\n\n\n\n

Q2 earnings results and management guidance for upcoming quarters could provide some hints about the future path of the economy and earnings. <\/p>\n\n\n\n

The consensus forecast calls for earnings to trough in Q2 2023<\/h3>\n\n\n\n

S&P 500 quarterly earnings per share
(dark blue are actual data; light blue are consensus estimates) <\/h4>\n\n\n\n
\"S&P

Column chart showing S&P 500 quarterly earnings per share from Q1 2021 through Q4 2024. Data from the start through Q1 2023 are actual results. Data for Q2 2023 and onward are consensus forecasts. In Q1 2021, S&P 500 earnings were approximately $49 per share. It rose each quarter to a peak of almost $56 per share in Q2 2022. In the three subsequent quarters it declined, reaching about $53 in Q1 2023. For Q2 2023 the consensus forecast is for an additional decline to $52 per share. The consensus forecast then calls for earnings to increase in the next two quarters of this year to $57 by Q4 2023. The consensus forecast calls for further increases in 2024 to roughly $65 by Q4 2024. <\/p>

Projected earnings growth in 2024 is contingent on the U.S. economy avoiding recession, in our view. <\/strong> <\/p>

Source – FactSet, Refinitiv I\/B\/E\/S, national research correspondent; data as of 4\/12\/23 <\/p> <\/div> <\/div>\n\n\n\n

Profits in perspective<\/h2>\n\n\n\n

The consensus forecast is for S&P 500 Q2 earnings to decline 7.0 percent year over year. <\/p>\n\n\n\n

We believe the outcome will be better than feared \u2013 and, importantly, that this is widely expected. This is part of the reason market performance has broadened out lately, in our view. <\/p>\n\n\n\n

When all is said and done with the reporting season, and earnings beats are factored in, our national research correspondent anticipates Q2 earnings will decline about 3.4 percent rather than 7.0 percent. <\/p>\n\n\n\n