Investors faced a challenging week as markets reacted to higher-than-expected inflation data, delaying hopes for interest rate cuts. However, the tide may turn as earnings season kicks into high gear.
The S&P 500 experienced a 1.6% decline, marking its largest two-week drop since late October. Despite this, a strong economic environment could lead to positive first-quarter results for corporations, potentially boosting stocks.
Citigroup’s U.S. equity strategist Scott Chronert highlighted the importance of companies meeting high expectations in their earnings reports. Early reports from banks have already shown the risk of falling short of growth expectations, especially in light of concerns about interest rates.
Financial giants like JPMorgan Chase and Wells Fargo saw their shares decline after releasing quarterly results, causing some investor anxiety. However, Chronert remains optimistic, suggesting that positive surprises in earnings reports could present a buying opportunity for investors.
UBS also expects strong earnings growth for the S&P 500, with head of U.S. equities David Lefkowitz predicting a 7-9% year-over-year increase in first-quarter earnings per share. This confidence is supported by strong economic indicators and positive results from companies reporting earlier in the year.
Lefkowitz anticipates that the broadening growth trend will continue throughout the year, contrasting with the previous quarter where only a few companies saw significant earnings growth. He believes that the current environment supports further gains in the market, with a year-end target of 5200 for the S&P 500.
Overall, while the second quarter has presented challenges, there is still potential for a bullish market resurgence. As companies continue to report earnings and economic conditions remain favorable, investors may find opportunities for growth in the coming months.
