Priced for ‘sunshine and rainbows’
Investors are about to find out whether second-quarter earnings can live up to their sky-high expectations.
Profits from S&P 500 companies probably rose 24% in the three months through June, data compiled by Bloomberg Intelligence show. That would be among the best readings ever outside of recoveries from major recessions.
The problem is those projections are running up against sticky inflation, climbing energy costs and rising odds of rate hikes. With stocks near records and valuations looking stretched, the setup leaves little room for error.
“There’s just less room for companies to blow away investors — they expect sunshine and rainbows and that’s what companies are going to have to deliver,” said Anthony Saglimbene of Ameriprise Advisor Services.
Much depends on tech companies, which have been the biggest drivers of market rallies in the US, Taiwan and South Korea. TSMC passed today’s test, highlighting demand for advanced chips used in data centers and smartphones.
The picture looks different in South Korea. There, fears of lower-than-expected earnings and a rotation into newly listed US shares of SK Hynix triggered a selloff that pushed the benchmark Kospi down 9%. SK Hynix tumbled by a record 15% and peer Samsung Electronics fell nearly 11%
Looking ahead, investors are likely to focus on big spenders on AI infrastructure — Alphabet, Amazon, Meta, Microsoft and Oracle. The group was among the biggest AI winners until recently, when investors questioned how much cash they’re spending. —Geoffrey Morgan and Sagarika Jaisinghani