Halfway through the financial reporting season, U.S. stocks are generally satisfactory

Although the macroeconomy faces resistance, the first quarter financial reports of American companies this year have shown a resilient trend in corporate profits, largely in line with Wall Street's optimistic expectations.

About 81% of S&P 500 Component Stocks Exceed Expectations

According to media statistics, among the 230 Standard & Poor's 500 Index component stocks that have released financial reports, about 81% of companies have outperformed Wall Street's expectations. If this trend continues, it will be significantly higher than the average level of 75% over the past 10 years. The S&P 500 Index is likely to achieve profit growth for the third consecutive quarter, with the financial reports of tech giants playing a significant role in driving the market. Although companies like Meta and Tesla have average performance, positive results from star companies like Google and Microsoft have boosted investor sentiment.

There are some similarities between the Q1 financial reporting season and Q4—topics like artificial intelligence continue to heat up, inflation stickiness intensifies, and corporate profit margins are under scrutiny. However, compared to the beginning of the year, there have been significant changes in the macro environment. Geopolitical tensions are escalating, and the expectation of a Fed rate cut has become increasingly bleak, leading to a nearly 3% decline in the S&P 500 Index so far this month. In this context, U.S. corporate profits are showing crucial support.

Scott Helfstein, Head of Investment Strategy at Global X, stated:

While corporate profit expectations are optimistic, the market has already accepted the fact that the Fed will not cut rates seven times in a row—these two factors have reignited doubts about the current market optimism. But ultimately, it comes back to the reality of profit improvement.

Risk Appetite Reversal: Good Performance Doesn't Necessarily Mean Stock Price Increase

Media analysis points out that in recent quarters, the CPI growth rate has exceeded the PPI, coupled with corporate cost control measures, supporting the recovery of the profit margin of the S&P 500 Index and driving profit growth.

Profit margin is a key indicator of profitability and has historically been able to predict stock price trends. Media data shows that Wall Street expects the profit margin of S&P 500 companies in the first quarter to be around 14%, a slight increase from below 12% at the beginning of 2020, and is expected to continue to improve in the coming quarters.

A major feature of this round of financial reporting season is that due to a significant convergence of rate cut expectations compared to the beginning of the year, investors' risk appetite has also reversed. Compared to previous financial reporting seasons, it has become more difficult for stock prices to rise, even if overall performance exceeds expectations, stock prices on the day of the financial report release may still decline. Since April 11th when JPMorgan Chase and other major banks began reporting earnings, the S&P 500 Index has fallen by 1.9%.

As of now, the 12-month PE ratio average of S&P 500 component stocks is 20 times, higher than the 5-year average (19.1) and the 10-year average (17.8), but lower than the 21 times recorded on March 31st.

Looking ahead, analysts expect earnings to grow by 9.7%, 8.6%, and 17.3% year-on-year in Q2, Q3, and Q4 respectively. For the 2024 fiscal year, analysts predict a 10.8% year-on-year growth in earnings