Earnings reports are coming in thick and fast! Latest MLIV survey: Strong profits from US companies will become the "savior" of the US stock market

According to the latest Markets Live Pulse (MLIV Pulse) survey, despite growing concerns among respondents about the significant rise in US bond yields, strong corporate earnings in the United States are expected to pull the S&P 500 index out of its recent predicament.

As the earnings season reaches its peak this week, major tech giants such as Microsoft (MSFT.US), Meta Platforms (META.US), Alphabet (GOOGL.US), and others have been releasing their financial reports. Nearly two-thirds of the 409 respondents believe that corporate earnings will boost US stock indices, reaching the highest level since the issue was first surveyed in October 2022.

Respondents are optimistic that first-quarter earnings will revive the S&P 500 index.

"I am quite optimistic about this earnings season and do not expect anything terrible to happen," said Neil Birrell, Chief Investment Officer at Premier Miton Investors. "The key is for the company's fundamentals to be reflected in the stock price, rather than macro factors. So far, what has been driving asset prices higher has been interest rates and inflation."

Despite escalating tensions in the Middle East, the rising geopolitical risks do not seem to be the main concern. One reason may be that historically, the stock market tends to remain resilient after similar pressure events. An analysis by HSBC Holdings' multi-asset strategist shows that over the past 25 years, the US stock market has risen on average 70% of the time after major geopolitical events.

In fact, since the conflict began on October 7 last year, the S&P 500 index has rebounded, indicating that traders and investors seem to have already digested this uncertainty—at least for now.

Strategists led by Max Kettner stated, "If there is anything different, it is that the consequences of these events have brought buying opportunities." "Apart from geopolitical factors, the fundamentals remain favorable, and growth expectations are still on the rise."

Nearly half of the respondents believe that the 10-year US Treasury yield rising above 5% poses a significant risk, greater than the risks of rising oil prices or failing to deliver on artificial intelligence promises.

Since hitting a record on March 28, the S&P 500 index has been struggling, as the Federal Reserve signaled its reluctance to cut interest rates after a series of higher-than-expected inflation data. The index is currently at a two-month low, down 5.5% from its historical high.

Nicole Inui, Head of US and Latin America Equity Strategy at HSBC, stated, "The first-quarter earnings season may provide good support for the US stock market, especially after the selling pressure seen in the past month Historically, rebounds may be on the horizon. Data compiled by Bloomberg shows that since 1999, during the period when JPMorgan Chase (JPM.US) and Walmart (WMT.US) announced their earnings, the S&P 500 index has risen 67% of the time.

However, Deutsche Bank strategist Parag Thatte and his team caution that the extent of the rise during any given reporting period depends on how exposed investors are to stocks. Following record growth in the first quarter, positions are already quite high this time around. Therefore, Thatte's team does not expect a significant increase in the S&P 500 index.

This week, the financial reports of American tech giants and the development of artificial intelligence will take center stage.

Market attention seems to be shifting away from the representative company of artificial intelligence, NVIDIA (NVDA.US), whose stock price has surged by 54% this year. Half of the respondents surveyed by MLIV indicated that the best way to increase exposure to artificial intelligence is through secondary and tertiary businesses, such as the power grid, which will benefit from the significant energy demand of artificial intelligence.

Most importantly, the upcoming financial reports from American corporate giants provide an opportunity for a turnaround in the U.S. stock market. The S&P 500 index has experienced three consecutive weeks of decline, marking the longest continuous decline since September last year.

Florian Ielpo, Head of Macroeconomic Research at Lombard Odier Asset Management, stated: "Due to market focus on interest rates and other uncertainties, the earnings season has been widely overlooked." "This earnings season has started off strong."