Despite a sell-off last Friday, stocks remain close to record highs, and Wall Street is looking forward to the upcoming earnings season, particularly from banks. The market’s optimism stems from a year driven by advancements in AI technology.
Since the lows in April, the S&P 500 has surged by over 30%, or around 1,800 points, while the Nasdaq Composite has experienced a remarkable increase of approximately 50% over the same six-month period.
Analysts predict that third-quarter earnings for the S&P 500 will rise by 8% compared to last year, potentially marking the ninth consecutive quarter of profit growth, according to FactSet data.
Technology companies are leading the charge in earnings guidance this season, especially software and semiconductor firms, which are primarily driving the positive forecasts.
The significant partnership between OpenAI, the maker of ChatGPT, and chip manufacturer AMD has sparked discussions about whether the market might be in a bubble. Investment analyst Lisa Schreiber noted that while valuations are high, solid fundamentals are still driving earnings growth.
At the moment, the S&P 500 is trading at approximately 25 times this year’s expected earnings, a level that suggests robust confidence in meeting profit expectations, as highlighted by DataTrek Research co-founder Nicholas Colas.
While Goldman Sachs analysts believe the market is not yet in a bubble, citing strong balance sheets among leading companies, UBS analysts project a 67% year-over-year growth in global AI capital expenditures by 2025, emphasizing solid fundamentals and a favorable macroeconomic environment.
