Q1 Earnings Season Wraps Up Strong as Investors Eye September Rate Cut

92% of S&P 500 companies reported a 5.4% profit growth rate, exceeding analysts' forecasts. Wall Street analysts raise expectations for the second quarter, with energy and raw materials companies leading profit growth.

Trim Correspondents
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Q1 Earnings Season Wraps Up Strong as Investors Eye September Rate Cut

Q1 Earnings Season Wraps Up Strong as Investors Eye September Rate Cut

As the first quarter earnings season of 2024 nears its end, 92% of S&P 500 companies have reported their financial results, showing a robust 5.4% growth rate that has exceeded analysts' pre-season forecasts. This strong performance comes despite a softening US labor market and investor expectations of a September interest rate cut by the Federal Reserve.

Why this matters: The strong earnings season has significant implications for the overall health of the US economy, as it indicates that companies are performing well despite challenges in the labor market. This could lead to increased investor confidence and potentially influence the Federal Reserve's decision on interest rates.

Wall Street analysts are raising expectations for the second quarter at the fastest pace in two years, indicating growing confidence in the profit prospects of US corporations. Energy and raw materials companies are leading the profit growth, closely linked to the economic cycle. The profit correction momentum indicator has reached its highest level since September last year, suggesting analysts may further raise profit expectations in the coming weeks.

Despite conflicting comments from Federal Reserve officials hinting at keeping interest rates high for longer, US stocks continue to approach historic highs. Investors remain focused on September 2023 as the likely timing for the Fed to begin cutting rates. The CME Group's FedWatch Tool anticipates the Fed will hold rates steady until September 18, 2024, and then start a series of 0.25% rate cuts.

Thomas Martin, senior portfolio manager at Global Investments, views the strong earnings season as a positive sign. "This is definitely a positive sign because I want to invest in companies whose earnings are expected to increase, because these stocks have good profit prospects," Martin said.

Several notable companies are set to report earnings this week, providing further insights into consumer strength, economic growth, and corporate profitability. Under Armour will release Q1 2024 results on May 16, a week later than expected. America's largest retailers, including Home Depot, Walmart, and Target, are also on deck to report. Nvidia, the leader in the artificial intelligence boom, will announce financial results next Wednesday.

In other market news, S&P 500 and Nasdaq-100 futures edged higher, while Dow futures were flat, following eight consecutive days of gains. All three indexes have advanced by at least 3.7% this month. Treasury yields held steady after rising on Friday, while gold futures fell more than 1% following a rally late last week. Investors are also awaiting key inflation data, with April's producer-price index due on Tuesday and the consumer-price index on Wednesday.

As the Q1 2024 earnings season wraps up, the strong 5.4% profit growth rate and rising analyst estimates paint a positive picture for US corporate earnings. With investors eyeing a potential September interest rate cut and several key earnings reports and economic data releases on tap, the coming weeks will provide further clarity on the health of the US economy and the direction of financial markets.

Key Takeaways

  • 92% of S&P 500 companies reported 5.4% profit growth, exceeding forecasts.
  • Analysts raise Q2 expectations at fastest pace in 2 years, driven by energy and raw materials.
  • Investors expect September 2024 interest rate cut, despite conflicting Fed comments.
  • Strong earnings season boosts investor confidence and supports US stocks.
  • Key earnings reports and inflation data releases expected in coming weeks.