Strong corporate results accelerate rally on Wall Street and confirm good economic sentiment | Financial markets

Donald Trump’s election victory was the cherry on top of Wall Street’s never-ending rally. The Republican leader’s promises of fewer taxes and less regulation further boosted prices in the US stock market and led to new highs in its indexes: the Dow Jones index exceeded 44,000 for the first time in its history, and the S&P index exceeded 6,000. But this bullish trend also is supported, and very strongly, by a positive results campaign in which more than 70% of S&P companies beat market forecasts and which gives cause for optimism profit forecasts for 2025.

Nearly 90% of S&P companies have already reported their third-quarter results, and 75% of them have pleasantly surprised the market, according to Bloomberg data compiled by Citi. For the US bank, business results are the main positive element in the analysis of the US market outlook, while the most negative element is the assessment of valuations: the S&P 500 index trades at a price-to-earnings ratio (PER) of 25 times. Investors would have already discounted a soft landing scenario for the economy, and now more uncertainty is moving into policy and the impact of Trump’s promised tariff hikes, corporate tax cut from 21% to 15% and regulatory cuts. requirements in sectors such as banking or large technology companies.

In any case, market sentiment is positive, almost euphoric. The business results support this progress and are aimed at further strengthening the positive outlook for the US stock market next year. S&P earnings growth stood at 8% year over year through September and was particularly strong in the telecom and information technology sectors, with gains of 22% and 20%. In fact, these are the two sectors that are dragging the stock market the most. In contrast, lower crude oil and commodity prices caused earnings to decline 29% in the S&P 500’s energy sector and 12% in the materials sector. “Many technology companies have reported strong earnings growth. But we also see surprisingly strong growth relative to historical data in other sectors, some of which include companies with regular dividend distribution policies,” Capital Group said.

For Goldman Sachs, third-quarter results largely represented a return to normalcy after several quarters of stunning profits. However, the stock market’s reaction to the publication of quarterly reports is far from normal.

“With the exception of the prior quarter, stocks are posting their biggest post-reporting quarterly moves since the Great Financial Crisis,” Goldman said, even though the period coincided with Donald Trump’s election victory. . According to the US bank, numerous companies that beat consensus estimates outperformed the S&P 500 by an average of 1.59% the day after their earnings announcement, above the 2006 average of 1.01%. “These dynamics favored stock selection and contributed to the continuation of the low equity market correlation conditions that characterized much of the year,” the firm adds.

“90% of S&P 500 companies have already reported their quarterly results, with 74% beating EPS estimates by an average of 4.4%. Of those that reported, 62% beat sales forecasts by an average of 1.3%,” Link Securities noted. However, according to market consensus compiled by Factset, revenue forecasts for the fourth quarter were cut to 4.6% from a forecast of 5.5% at the end of June, while EPS growth expectations for the final quarter of the year also fell to the current 11.9% from 16.6% in June. In any case, growth will remain above 10%.

The market consensus is for S&P earnings to increase 14% by 2025. Goldman Sachs forecasts growth of 11% in 2025 and 7% in 2026. That estimate, they explain, could vary up or down depending on the tax and tariff changes Trump imposes in his new mandate. The American bank has calculated that for every 5 percentage points of effective tariff increases in the US, earnings per share of the S&P 500 index could decline by 1-2%. represents an increase in this earnings per share of less than 1%. Citi forecasts an 8% increase in earnings per share for the world’s main stock index, below market consensus.

Waiting for the Nvidia star

The latest surge in Wall Street’s rally has made Nvidia the world’s most valuable listed company, ahead of Apple, a throne that will be put to the test when it releases third-quarter results on November 20, and could further widen the plus capitalization gap between the Magnificent Seven and the rest of the market. Taking into account the 82% sales growth that market consensus expects Nvidia to deliver, the Fab Seven would have increased its total earnings by 30% year over year in the third quarter. In contrast, the remaining 493 S&P indexes would barely have risen more than 3%. The gap between the two is expected to narrow in 2025, when analysts expect the 493 securities’ combined earnings per share to grow by 12% in 2025 and 11% in 2026. Slightly closer to 17% and 15% are expected for seven technologies. giants.