The stock market just avoided an ‘earnings apocalypse,’ paving the way for a year-end rally

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  • The inventory market has averted an “earnings apocalypse” following third-quarter outcomes, in accordance with BMO.

  • BMO’s Brian Belski highlighted three components that ought to assist shares climb the “wall of fear” into year-end.

  • “We proceed to view this as a bull market and that the trail of least resistance is increased inventory costs,” Belski stated.

The inventory market simply averted an “earnings apocalypse” following third-quarter outcomes, and that ought to set the stage for extra good points heading into year-end.

That is in accordance with BMO chief funding strategist Brian Belski, who stated in a current word that regardless of the continuing rally in shares, there’s nonetheless a whole lot of pessimism amongst traders.

“Regardless of a powerful month-to-date achieve to date, there may be nonetheless a good quantity of negativity and concern concerning inventory market course,” Belski stated.

However that negativity amongst traders ought to function gas for the market as shares are poised to “climb the wall of fear” heading into the top of the 12 months.

“We proceed to view this as a bull market and that the trail of least resistance is increased inventory costs via year-end,” Belski stated. “The extraordinarily robust begin to 2023 offered a buffer for current weak point and begins that robust have sometimes led to continued good points even with bumps alongside the best way.”

Belski highlighted that the resilience of company earnings is getting ignored by traders, particularly provided that many thought earnings estimates have been too excessive this 12 months.

However firms are beginning to ship on earnings after a short-lived earnings recession.

With 94% of S&P 500 firms having reported third-quarter earnings outcomes, 83% beat revenue estimates by a median of seven%, which is increased than common. In the meantime, third-quarter earnings per share for the S&P 500 are on monitor to develop 11% excluding the power sector, in accordance with Fundstrat.

“Earnings apocalypse has not occurred. Regardless of all the priority about ‘too excessive’ earnings estimates this 12 months, combination earnings shock has been nicely above common for the primary three quarters. Share of firms beating additionally close to historic highs, whereas steering tendencies stay buoyant,” Belski stated.

The stable earnings is setting the inventory market up nicely for continued good points over the following few months, in accordance with the word, particularly due to a seasonal tailwind over the past two months of the 12 months, and a marked enchancment in inventory market breadth.

“The variety of outperforming S&P 500 shares has elevated to 193 from 146, or practically 10% of index shares, when evaluating [the] second half of 2023 vs first half of 2023, respectively,” Belski famous.

That is an encouraging sign, as extra participation within the inventory market rally ought to assist drive a sustainable continuation of the present bull market. 

Learn the unique article on Enterprise Insider

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