Wall Street’s View on S&P 500 Profits Is Souring as Tariffs Loom

Wall Street’s confidence in Corporate America’s profit engine is fraying, threatening more turbulence ahead for a badly bruised US stock market. - Bloomberg

In the opening weeks of 2024, investors were poised and ready for another promising earnings season. With corporate America's profits in the S&P 500 index steadily climbing, expectations were set for a 4% year-on-year growth [1]. This optimistic outlook was further bolstered by the S&P 500's relentless march towards new records, breaking through the 5,000 mark for the first time [2]. However, beneath the surface of these impressive figures, Wall Street's confidence in Corporate America's profit engine is showing signs of fraying.

As recently as 2023, concerns about a potential recession and the Federal Reserve's aggressive interest rate hikes had cast doubt over the future growth prospects of US corporations. Yet, the arrival of 2024 brought with it a surprising turn of events. Strong US economic data, marked by lower inflation rates and impressive job growth, has led to a resurgence in investor confidence [2].

Despite this optimistic backdrop, analysts and experts are now expressing concern over the sustainability of corporate profit growth. Lee Ferridge, the head of macro strategy at State Street Global Markets, cautions that while the current economic conditions are favorable, they may not last forever [2]. Moreover, Lori Calvasina, the head of US equity strategy at RBC Capital Markets, admits that the unexpectedly strong start to the year has caught many investors off guard, including herself [2].

This renewed uncertainty surrounding corporate profits threatens to cast a long shadow over the US stock market. With Wall Street attempting to gauge when policymakers will be ready to cut interest rates, the market remains in a state of flux [2]. As the earnings season unfolds and investors scrutinize the financial health of America's largest corporations, the true extent of the damage to the profit engine will become clear.

References:
[1] Economist. (2024, October 22). America's growing profits are under threat. https://www.economist.com/business/2024/10/22/americas-growing-profits-are-under-threat
[2] NPR. (2024, February 12). The stock market sets new records as Wall Street's confidence in the economy grows. https://www.npr.org/2024/02/12/1230987886/the-stock-market-sets-new-records-as-wall-streets-confidence-in-the-economy-grows