1Q24 Earnings Season to Provide a Tailwind to U.S. Equities

May 13, 2024

Coco Fang

Positive earnings surprises have provided a boost to stocks in every earnings season since the pandemic. This quarter will probably no different. Pervasive negative guidance coupled with downward revisions have lowered the bar for beats. The key question this quarter is not the earnings figures, but how companies are coping with today’s transformative era?

The best companies are not only generating solid earnings but doing so more efficiently. Profit margins are high and stable at pre-pandemic levels. Some even experienced margin expansion. Taking one of the leading U.S. giant tech firms as an example, sales climbed 15% last year while expenses rose just 5%. High-quality companies can thrive in a high-rate environment. Beyond big tech, 40% of S&P 500 companies mentioned Artificial Intelligence on their Q4 2023 earning calls, compared with just 20% a year prior. Dedicated AI-driven business plans will lift corporate efficiency in the long run.

Corporations have been making dedicated efforts to return value to shareholders, using free cash flow to increase dividend payments and share buybacks. Some even announced their first dividends this quarter. The combination of low expectations, improving efficiency and a commitment to shareholder returns should create a tailwind for equity markets out of the 1Q24 earnings season.


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