Q1: Improving earnings is the main driver of this nascent bull market. We are optimistic as we enter the final stretch of earnings season. The three US tech sectors have decisively led the 7% S&P 500 earnings growth. It’s been a feast or famine quarter vs healthcare and commodity laggards. Easing inflation has allowed profit margins to recover, compensating for sluggish 3% sales. US GDP ‘exceptionalism’ saw domestic company sales outpace global peers. Management guidance, from Tesla (TSLA (NASDAQ:TSLA)) to Meta (META), been as crucial as the reports. Companies have been the most bullish on conference calls in two years, and analyst forecasts are rising (see chart).
US: S&P 500 earnings growth is running up 7% and well ahead of lowered analyst expectations. With 77% of companies and all sectors ahead of analyst forecasts. Growth has been led by the three ‘tech’ segments. With Communications, Discretionary, and Information Technology sector profits up at least 20%. With Healthcare dragged down by Bristol-Myers (BMY) alongside Energy, led by natgas and refining, and Materials, by chemicals. All are seeing profits fall at least 20%. Misses are treated no worse than usual, down 2.5%, reflecting already lowered expectations. The season will end with a bang as Nvidia (NASDAQ:NVDA) does not report until May 22nd.
EUROPE: Near half the Stoxx 600 has reported so far, and the earnings claw-back has started. Revenues are down -5% and earnings -9%, reflecting the weak economy and lack of tech. But results are beating expectations, and ‘beats’ ahead of average. Utilities and financials have led growth, with real estate and commodities slumping. Spain is leading country results and Germany lagging. Europe’ earnings forecasts have been rising at twice rate of US in past three months. We expect an accelerated recovery from here. Given the low earnings and profit margin base, more cyclical index composition, and the rate cut driven macro-economic recovery catalyst.