Introduction: Despite concerns of an impending “earnings apocalypse,” the stock market has defied pessimistic expectations following robust third-quarter results. BMO’s Chief Investment Strategist, Brian Belski, outlines three key factors that not only steered the market away from potential turmoil but also paved the way for a year-end rally. Amid ongoing investor scepticism, Belski remains optimistic, viewing the current landscape as a bull market with the path of least resistance pointing towards higher stock prices.
Navigating Negativity: Despite a noteworthy month-to-date gain, a prevailing atmosphere of negativity and uncertainty persists among investors. Belski acknowledges this sentiment but sees it as a potential catalyst, propelling stocks to “climb the wall of worry” in the coming months. The strength exhibited at the beginning of 2023 provides a buffer for recent market fluctuations, with historical patterns suggesting continued gains despite occasional bumps along the way.
Corporate Earnings Resilience: Belski emphasizes the often-overlooked resilience of corporate earnings, a crucial factor in the market’s robust performance. Contrary to concerns about inflated earnings estimates, corporations have surpassed profit expectations, marking a turnaround from a brief earnings recession. With 94% of S&P 500 companies reporting third-quarter results, 83% have exceeded profit estimates, reflecting a median beat of 7%. This resilience defies the predicted “earnings apocalypse” and positions the market favorably for future gains.
Setting the Stage for Gains: The solid corporate earnings performance sets the stage for continued market gains in the coming months. The note highlights a seasonal tailwind during the last two months of the year, coupled with a marked improvement in stock market breadth. Belski notes a notable increase in the number of outperforming S&P 500 stocks, a positive signal for sustained momentum in the ongoing bull market.
Conclusion: While concerns of an “earnings apocalypse” loomed, the stock market has demonstrated resilience and optimism, positioning itself for a year-end rally. Belski’s analysis underscores the strength of corporate earnings, investor sentiment, and historical patterns, providing a positive outlook for continued market gains.
