Stocks have remained resilient in recent weeks, defying concerns over inflation and potential interest rate hikes by the Federal Reserve. The reason behind this surprising strength? A better-than-expected set of first quarter earnings.
According to Wall Street strategists, with 80% of S&P 500 companies having reported their earnings, the benchmark index is on track for a 5% growth in first quarter earnings per share. This marks the largest year-over-year increase since the second quarter of 2022 and surpasses the 3.2% growth that analysts had initially predicted.
Jean Boivin, head of the BlackRock Investment Institute, noted that typically, higher interest rates would negatively impact stock valuations. However, the strong Q1 earnings have provided support to the market, even as expectations remain high.
One of the most significant developments in recent weeks has been the outlook for the second quarter. While 55% of companies have provided lower EPS guidance than expected, this is still below the 10-year average of 63%. Analysts, on the other hand, have surprisingly remained optimistic, with earnings per share projections for S&P 500 companies actually increasing by 0.7% in the first month of the second quarter.
DataTrek co-founders Jessica Rabe and Nicholas Colas described this trend as a “bullish development,” suggesting that positive estimate revisions could help support stock prices in the face of uncertainty surrounding monetary policy.
Overall, despite lingering concerns, the strong earnings performance in the first quarter and positive outlook for the second quarter have helped keep the stock market buoyant. Investors will be closely watching for any potential exogenous shocks that could derail this positive momentum.
