Banks have kicked off the third-quarter earnings season on a strong note, and UBS expects this momentum to continue. Investors sent stocks lower on Thursday after September’s consumer price index revealed that the pace of price increases over the past year was higher than economists had forecasted. But stocks made a comeback on Friday morning, boosted higher by strong third-quarter results from JPMorgan Chase , Wells Fargo and BlackRock . The S & P 500 touched a record in early trading and was headed for its fifth-straight winning week. UBS expects this strong performance to set the precedent for a solid earnings season that is “consistent with recent, healthy trends.” “While headline S & P 500 EPS growth will likely slow to about 5-7% (from 11% in 2Q), a large portion of the slowdown is coming from the energy sector due to lower oil and gasoline prices. Excluding the energy sector, S & P 500 profit growth should be 8-10%,” the bank wrote in a note to clients. UBS added that since lower energy prices take some pricing strain off consumers, there’s a higher chance for companies in the consumer discretionary sector to post a positive surprise. And despite profit growth broadening out, the “Magnificent Seven” cohort is still expected to lead. “Many of these companies are benefiting from continued strong growth in AI investment spending and monetization,” UBS added. “In aggregate, the Magnificent 7 will account for 21% of S & P 500 profits in 2024 and closer to 25% in 2025.” Overall, this positive earnings season contributes to a healthy backdrop for U.S. equities, with UBS noting that in non-recessionary situations the S & P 500 has risen 17% on average the year after the Federal Reserve begins lowering interest rates. The bank sees the S & P 500 climbing to 5,900 by year end and 6,200 by June 2025. This is respectively 2% and 7% higher than where the benchmark closed on Thursday.
#Earnings #growth #continue #drive #UBS
