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US Perspectives - Strong earnings and Fed optimism buoy US equities

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US Perspectives - Strong earnings and Fed optimism buoy US equities

Jun 26, 2024

  • From 1st May to 21st June, US equity markets have far outpaced other major markets. During this period, the S&P 500 climbed +8.7 per cent, while the Nasdaq has risen +13.5 per cent. The MSCI World Index is up only 6.5 per cent, while the Nikkei 225 only edged up +0.5 per cent in this period
  • The top-performing S&P sectors were information technology (+22.0 per cent) and communication services (+10.3 per cent). Growth (+14.0 per cent) has far outperformed value (+2.2 per cent). Political uncertainty has lifted uncertainty and hurt performance in many global markets
  • Despite a slowing GDP growth and cooling in labour markets, analysts’ estimates for 2Q24 earnings have actually increased. According to FactSet, the median S&P EPS estimates for the second quarter increased 0.3 per cent to USD59.43 from USD59.22 from 31st March to 30th May
  •  For Q2 2024, the companies in the S&P 500 are forecast to report earnings growth of 8.8 per cent
  •  If 8.8 per cent is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q1 2022 (+9.4 per cent) and would also mark the fourth consecutive quarter of year-over-year earnings growth for the index
  •  For investors looking for more market breadth, the good news is that eight of the eleven sectors are projected to report year-over-year growth
  • Looking ahead, the US economy is slowing but remains solid, and inflation should slow as the economy continues to slow. The technology revolution, which is just beginning, should reduce costs, expand revenues, and lift productivity
  • Corporate margins remain healthy at 12.0 per cent in 2Q24. Through 21st June, corporate earnings are forecast to rise 11.3 per cent and 14.4 per cent in 2024 and 2025, respectively. This is despite market expectations looking for only one rate cut this year
  • The fundamentals remain supportive of our overweight on US equities

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