For the 21st week in a row, more U.S. profit estimates went up than down, per Citigroup's tracking. That kind of momentum, not seen since September 2021 and now the longest stretch in five years, points to another muscular earnings season following a historically strong quarter. In short, the micro picture looks sturdy even as the macro gets noisier.
Investors are pricing in the chance of a Federal Reserve rate increase next week while WTI crude trades firmly above $90 a barrel. The stock rally has paused over the past month, but the S&P 500 is still only about 1% shy of its all-time peak. Higher yields are part of the backdrop, yet they are arriving alongside better growth, which helps stocks handle pricier money.
Marija Veitmane of State Street Global Markets, who leads equity research, said, "Micro, not macro drives stocks." "I continue to see strong earnings upgrades boosting investors' appetite for stocks, and I don't think this is euphoria and 'head in the sand' behavior."
UBS Group AG's head of global macro equity strategy, Keith Parker, pointed out that the outlook for next-year S&P 500 profits is up nearly 4% over the past two months. "That's highly unusual and signals the robustness of recent US earnings across multiple sectors."
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Other investors see more to come from artificial intelligence. HSBC Private Bank's global chief investment officer, Willem Sels, said U.S. equity valuations still do not reflect the scale of AI-driven productivity gains.
The bond market has been calling the tune lately. Normally, rising yields weigh on stocks by lifting borrowing costs and trimming the value of future cash flows. This time, though, the move higher in yields is happening alongside stronger growth, which suggests equities have some room to absorb tighter financial conditions. Layer in ongoing earnings upgrades and the AI productivity story, and you get a market that still has plausible support even with inflation pressures in the mix.
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