S&P 500 Grew by 30%: Strong Corporate Performance Amid Market Volatility
A new economic review by the Swiss investment bank Lombard Odier reveals that core earnings of S&P 500 companies recorded a 30% growth, despite a wave of layoffs and significant market concerns.
Economists at one of the world's leading investment banks, Lombard Odier, have conducted an economic review focusing on the ongoing volatility in the markets and the performance of companies, which remains strong despite the current climate.
"Since the beginning of July, global stock markets have been characterized by volatility, yet indices finished the month almost unchanged. At the same time, the earnings season points to continued strong growth in corporate profits. Market gains have expanded beyond technology companies, with the energy and financial sectors standing out in their performance. On the other hand, the conflict in the Middle East, rising oil prices, questions surrounding monetary policy in the USA, and midterm elections have weighed on market sentiment.
At the same time, concerns have resurfaced regarding the return on investment in artificial intelligence, against the backdrop of increasing competition from Chinese technology companies and the sharp rise in investments by cloud giants. As a result, many stock markets struggled to record gains during July. In the USA, even companies that beat profit forecasts did not always receive rewards from investors, while in Europe, companies that missed forecasts were punished with sharp declines—a sign that volatility is expected to continue throughout the earnings season.
Despite market volatility, the underlying data of companies remains strong, and the pace of profit growth is even accelerating. Exceptionally, analysts raised profit forecasts for S&P 500 companies by more than 3% ahead of the earnings season, instead of lowering them as is customary—and even after that, companies continue to beat forecasts.
So far, with reports published by about two-thirds of the companies in the MSCI World index, profits are expected to grow by about 38% compared to the same period last year. In the USA, the core earnings of S&P 500 companies grew by about 30%, against the backdrop of an 11% increase in revenue and an expansion of profit margins.
Alongside AI companies, the financial and energy sectors also stood out in the second quarter. The rise in oil prices following the conflict in the Middle East gave a temporary boost to the profits of energy companies, while in the financial sector, second-quarter profits significantly exceeded forecasts, thanks to growth in credit, active capital markets, and strong interest income. The materials and infrastructure sectors are also benefiting from investments in AI, the trend of electrification, and industrial investments.
The earnings season also included some warning signs. Large American companies reported a certain increase in the volume of layoffs, and some pointed to continued consumer caution and higher sensitivity to prices. However, consumer spending in the USA remains stable. Companies continue to increase their investments, even beyond the technology sector, into manufacturing, transportation, logistics, construction, and engineering.
At Lombard Odier, we maintain a positive approach towards stock markets, with a preference for emerging markets, Japan, and the healthcare, materials, financial, and infrastructure sectors. In our assessment, market volatility is expected to continue, against the backdrop of geopolitical uncertainty, expectations regarding interest rates in the USA, and the ongoing evaluation by investors of AI investments. Nevertheless, profit growth in most sectors provides a positive basis for the continued performance of stock markets in the coming quarters.
