Investors faced a rollercoaster of a week as markets reacted to higher-than-expected inflation data, causing a delay in anticipated interest rate cuts. However, hope is not lost as earnings results may provide a much-needed boost to stocks.
The S&P 500 experienced a 1.6% decline for the week, marking its largest two-week decline since late October. Despite this, a strong economic backdrop may have contributed to strong first-quarter results for corporations, potentially lifting stocks out of their current funk.
Citigroup U.S. equity strategist Scott Chronert highlighted the importance of companies delivering strong results in the current market environment. Early reports from banks have already shown the risk of guidance falling short of high growth expectations, even as the overall fundamental picture remains healthy.
Financial giants like JPMorgan Chase and Wells Fargo saw declines in their shares after releasing quarterly results, with investors expressing concerns about the impact of interest rates. However, Chronert remains optimistic, suggesting that a buying opportunity may arise as positive surprises in earnings reports could help adjust market growth expectations.
UBS also expects positive earnings growth, with head of U.S. equities David Lefkowitz predicting first-quarter earnings-per-share growth of 7% to 9% year over year. This confidence is supported by strong results from companies reporting for quarters ending in February, as well as positive economic indicators in the labor market and manufacturing sector.
While the second quarter has presented challenges, analysts like Lefkowitz and Chronert remain hopeful for a strong finish to the year. With potential for earnings to exceed expectations and inflation to improve, there is a chance for stocks to rally and for bulls to regain control of the market.
Overall, despite recent market turbulence, there is still optimism for a positive outlook in the coming months. Investors are advised to stay tuned for upcoming earnings reports and economic data to gauge the market’s direction.
