BlackRock strategists are not optimistic about the possibility of U.S. corporate earnings turning positive in the third quarter. Despite investor hopes that the S&P 500 index will finally show some slight earnings growth, a team of strategists at BlackRock Investment Institute believes that earnings growth will remain stagnant for the foreseeable future.
The accompanying chart emphasizes the ongoing trend where a select group of major technology stocks continues to drive equity gains. Microsoft Corp. and Google parent Alphabet Inc. will be reporting earnings on Tuesday, followed by Meta Platforms Inc. and Amazon.com Inc. later in the week. Tesla Inc. reported earnings last week, while Apple Inc. is scheduled to report early next month.
Apple Faces ‘Ominous’ Setup Heading into Earnings
According to BlackRock’s global chief investment strategist, Wei Li, and the team at BlackRock Investment, “Markets expect year-over-year earnings growth to turn slightly positive in Q3. We think hopes of a long-awaited pickup are masking a still relatively stagnant growth trend.”
The Resilient Economy: A Closer Look
The current modest earnings growth doesn’t accurately reflect the true state of the resilient economy, according to market experts. They argue that the concept of “stealth stagnation” has gone unnoticed for the past 18 months, while consumer spending, gross domestic product (GDP), and job growth have remained strong, masking the underlying issue.
Recent events, such as the 10-year Treasury yield briefly surpassing 5% for the first time in 16 years, have finally prompted the markets to consider the possibility of interest rates staying higher for longer under the new regime. This aligns with the experts’ view, leading them to recommend actively investing in short-dated Treasurys, along with quality equities and fixed-income assets.
Furthermore, the experts believe that there are still significant opportunities in areas such as artificial intelligence, the rewiring of globalization, the transition to a low-carbon economy, and the future of finance.
While stocks saw minimal movement on Monday, indicators like the S&P 500, Dow Jones Industrial Average (DJIA), and Nasdaq Composite Index (COMP) were expected to close the month of October with losses, as reported by FactSet.
LSEG I/B/E/S estimated a modest earnings growth of 1.1% for the third quarter of this year compared to the same period last year.
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