Wall Street is expecting a subdued earnings season from Corporate America despite the first-quarter's stock market fireworks.
Yes, the S&P 500 Index rose 10% from January to March. Strategists, however, predict that S&P 500 companies will post their smallest year-over-year profit growth since 2019, just 3.9%, in the first quarter, according to data compiled by Bloomberg Intelligence.
But in this case the market may be onto something, because those forecasts could very well turn out to be overly gloomy — like they were in the fourth quarter, when expectations were for around 1% growth and the actual results turned out to be over 8%.
"With traders anticipating interest-rate cuts by the Federal Reserve later this year, that will likely feed into even stronger consumer spending, economic activity and, in turn, better earnings growth and higher stock prices," Wendy Soong, senior analyst at BI, said over the phone.
Earnings season kicks into full swing Friday, with JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. reporting. Other companies including BlackRock Inc. — world's largest asset manager — and State Street Corp., along with Delta Air Lines Inc. will deliver results this week.
Here's a look at five key themes to watch:
1. Concentrated Growth
A resilient economy and strong consumer demand are expected to fuel a rise in earnings growth for S&P 500 companies for a second straight quarter following three straight quarters of profit contraction. And strong margins from big tech firms will likely be a key driver.
Profits for the seven biggest growth companies in the S&P 500 — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Nvidia Corp., Meta Platforms Inc. and Tesla Inc. — are on course to rise 38% in the first quarter, according to Bloomberg Intelligence.
When excluding them, the rest of the index's profits are anticipated to shrink by 2%.
Source: JPMorgan Asset Management
Wall Street expects this trend to reverse as the year progresses.
In the fourth quarter, those seven firms are expected to post earnings growth of 15% compared with 18% for the rest of the S&P 500, according to data compiled by David Kelly, chief global strategist at JPMorgan Asset Management.
2. Raising Expectations
Analysts have been raising their earnings forecasts faster than they are marking them down for previously unloved groups, from health care to utilities.
