Solid Earnings, Trillions of Cash Drive Returns



  • The stock market is poised for a strong 2024 as corporate earnings are poised to impress.
  • “Earnings are likely to outpace the economy in 2024,” Bank of America’s Savita Subramanian said in a Monday note.
  • Also helping the outlook for stocks is the trillions of dollars of sidelined cash that could get invested.

The stock market is poised for a strong rally in 2024 as corporate earnings impress and trillions of dollars of sidelined cash gets invested, according to a Monday note from Bank of America.

The bank highlighted that earnings growth should outpace the economy next year as long as credit conditions don’t deteriorate further.

“The recent drop in [interest] rates and cost cutting point to potentially a stronger 2024 (also boosted by fiscal stimulus) – historically, earnings recovered faster than they fall,” BofA’s Savita Subramanian said. 

Earnings are already holding up better than expected this quarter.

Of the 25% of S&P 500 companies that have reported first-quarter earnings so far, 68% beat profit estimates and 75% beat sales estimates, which are both above their historical average. That’s a good sign for continued earnings growth as companies have had to deal with a lot of macro headwinds that could dissipate over the next year. 

“Earnings are likely to outpace the economy in 2024, as the earnings downturn began earlier than the economic downturn this cycle. Earnings also tend to recover stronger than they fall, as downturns usually remove excess capacity, resulting in leaner cost structure and improved margin profiles,” Subramanian explained.

And despite the collapse of Silicon Valley Bank last month, there’s potential for credit conditions to hold steady if private equity and venture capital firms deploy their $2.2 trillion cash pile.

“Liquidity from central banks and governments and banks may be waning, but dry powder at venture capital/private equity firms still sits at record levels,” Subramanian said.

Private equity firms aren’t the only ones that are hoarding cash.

Investors have poured a record $5 trillion into money market funds as they seek to take advantage of 4% interest rates. While that risk-free return is attractive to investors, a solid rally in risk-assets could spark some of that money to flow back into the stock market, helping boost stock prices.


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