BI, S&P Corporate Profit Expected to Decline 9%
AI Company Earnings and Cost Increases as Variables
European Firms Focus on Exchange Rate Impact
There are forecasts that the profits of major US and European companies will slow down in the second quarter of this year. Analysts suggest that the global stock market rally, which has continued since the beginning of the year, may reach a turning point in the coming weeks following corporate earnings announcements.
On the 16th (local time), Bloomberg News, citing Bloomberg Intelligence (BI), its economic research division, reported that the profits of S&P 500 companies are expected to decrease by 9% in the second quarter, marking the largest decline since 2020. European companies' profits are estimated to decline by 12%.
As major companies' earnings are expected to worsen, red flags have been raised for stock market forecasts that had been on the rise since the beginning of the year. The US S&P 500 has risen 17.3% since the start of the year, while the Euro Stoxx 50 increased by 16.0% during the same period. Bloomberg News stated, "Profits of US and European companies are expected to decline at the largest rate since 2020," adding, "The stock market rally is facing a critical test from corporate earnings."
The market anticipates that the earnings of artificial intelligence (AI) companies, which have driven this year's stock rally, along with rising labor and other costs, will impact future stock prices. In Europe, the effects on export companies to the US due to a weaker dollar and a stronger euro are also key points to watch.
Annika Gupta, Director of Macroeconomic Research at global asset management firm WisdomTree, predicted, "If the enthusiasm for AI is not sufficiently reflected in tech companies' earnings, we may experience a temporary correction in stock prices."
There is also analysis suggesting that the slowdown in US consumer price inflation may not be entirely welcome news for companies. Labor and other costs are still rising, and if the pace of price increases slows rapidly, companies may find it difficult to raise product prices, which could hurt profit margins. US consumer prices in June rose 3.0% year-on-year, marking the lowest level in two years and three months.
As the US Federal Reserve's tightening nears its end, the euro and Swiss franc have strengthened against the dollar, leading to expectations that European export companies may suffer some impact on their earnings. British investment bank Barclays predicted that the decline in European companies' profits will be larger than that of US companies due to weakness in the manufacturing sector.
Evgenia Molotova, Senior Investment Manager at Pictet Asset Management, expressed skepticism about whether companies can show the same level of earnings resilience this quarter, stating, "To confirm whether earnings will rebound in the second half of the year, growth and margin stability will be key."
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