The Focus This Week: US Earnings Season
In case you haven’t noticed, the fourth-quarter earnings season is officially underway, with companies starting to open their books, one after another. And this round of recommended reading is particularly crucial: after the US stock market’s strongest two-year rally since the dot-com bubble, corporate results will serve as a key test of whether stock valuations have outpaced reality.
Analysts estimate that S&P 500 companies’ earnings grew by 11.7% in the fourth quarter compared to the same period last year, which would mark the fastest pace of expansion since late 2021. The actual growth rate could be even higher, considering that most S&P 500 companies typically report results above forecasts. In fact, the actual earnings growth rate has outpaced estimates in 37 of the past 40 quarters. FactSet, for example, calculates that, based on the average earnings “beats” in recent years, the S&P 500’s latest results could show earnings growth of 14% to 19%.
Those kinds of numbers would certainly invigorate the bulls. And while these growth percentages are undeniably lofty, the earnings season has already started on a strong note, with several major banks reporting better-than-expected results last week. The key question for investors now is whether the bulk of the market’s momentum remains concentrated among a few heavyweight tech companies or whether it begins to broaden out. Analysts seem to believe it’s the latter: they expect S&P 500 firms, outside of the “Magnificent Seven”, to report a third straight quarter of earnings growth, with profits estimated to rise 4%, and then quickly accelerate toward double-digit increases, according to Bloomberg.
Finally, investors will be paying close attention to companies’ outlooks for this year – especially with a new US president taking office. On one hand, promises of tax cuts and deregulation could boost profits. But on the other, steep tariff increases and a stronger dollar could weigh them down.
On The Calendar
- Monday: China loan prime rate announcements.
- Tuesday: UK labor market report (November), eurozone economic sentiment (January). Earnings: Netflix, 3M.
- Wednesday: Earnings: Procter & Gamble, Johnson & Johnson, Abbott Laboratories, GE Vernova.
- Thursday: Japan trade balance (December), eurozone consumer confidence (January). Earnings: GE Aerospace, Intuitive Surgical.
- Friday: Japan inflation (December), Bank of Japan interest rate announcement, global PMIs (January), US consumer sentiment (January). Earnings: American Express, Verizon.
What You Might’ve Missed Last Week
US
- A key inflation measure was cooler than expected.
- The president-elect is reportedly considering a softer approach to tariffs.
Europe
- UK inflation slowed unexpectedly.
- And the UK’s economic growth fell short of forecasts.
Asia
- China’s trade surplus broke a record.
- The world’s second-biggest economy grew more than forecast.
Why It Matters
Investors have become increasingly worried that…
Read More: Earnings season and the investing week ahead
