Earnings growth not just about tech
Market take
Weekly video_20240415
Natalie Gill
Opening frame: What’s driving markets? Market take
Camera frame
This week, I’ll be sharing our insights on the outlook for U.S. company earnings.
Title slide: Earnings growth not just about tech
We think earnings resilience will be key for sentiment, especially after last week’s sticky inflation data spooked investors.
As first quarter results roll in, we look for brighter earnings across sectors, not just in tech.
1: U.S. corporate earnings
Strong earnings have been buoyed by cooling inflation and solid employment, helping companies to maintain their profit margins broadly.
Market sentiment and inflation
We still think market sentiment can stay upbeat. But core services inflation could pressure overall inflation, indicating potentially higher rates for longer.
A key question for stocks is whether economic and earnings growth remain strong enough to offset that macro outlook?
3: Sectoral earnings growth
Industrial earnings, while moderating, remain strong. Energy and commodity producers are picking up, with commodity prices at a near-decade high. This recovery in sectors beyond tech is part of the broadening out of stock index drivers that we expected.
Outro: Here’s our Market take
We expect earnings to broaden beyond tech, favoring AI beneficiaries. We're overweight U.S. stocks. We look for selective sector opportunities in industrials, commodities, healthcare and the energy sectors.
Closing frame: Read details:
www.blackrock.com/weekly-commentary.
As Q1 earnings season starts, we eye signs of earnings growth broadening beyond tech stocks to industrials and others. We stay overweight U.S. equities.
Crude oil prices rose, partly on heightened tensions in the Middle East. We are monitoring the risk of escalation – and potential impact on oil and inflation.
We’re watching U.S. retail sales for an update on the strength of consumer spending after some signs of fatigue in recent confidence indicators.
Solid U.S. economic and corporate earnings growth have supported risk appetite, driving stocks to all-time highs – even as bond yields have jumped. We think earnings will need to deliver on high expectations, especially after last week’s data showing sticky inflation spooked investors. As Q1 results start, we look for brighter earnings in sectors beyond tech, like industrials and materials, as the economy holds up. We stay overweight U.S. stocks while monitoring Middle East tensions.
Market backdrop
U.S. crude oil prices hit six-month highs, partly on heightened tensions in the Middle East. We are watching developments closely after Iran’s strikes in Israel over the weekend and see heightened geopolitical risks adding to economic volatility. U.S. stocks fell nearly 2% last week and 10-year Treasury yields pulled back after hitting 2024 highs near 4.60% after the March CPI report. The reported showed services inflation may put upward pressure on overall inflation sooner than we thought.
This week, we track Q1 earnings now underway – and expect earnings growth to broaden out beyond tech. We look for Monday’s U.S. retail sales to shed light on the strength of consumer spending after some signs of fatigue in sentiment data. We also eye China’s Q1 GDP for any signs that growth is starting to pick up from its weak state. We also get inflation data in both Japan and the UK. Markets have trimmed expectations for multiple Bank of England rate cuts.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of April 11, 2024. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.
U.S. retail sales
Japan trade data, UK CPI
China Q1 GDP, UK unemployment
Japan CPI
Read our past weekly market commentaries here.
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