Lack of pullback fear! Latest MLIV survey: Corporate financial reports will be the "life-saving straw" for US stocks

According to the latest information from Zhitong Finance and Economics APP, despite the recent sharp drop in the US stock market leading some Wall Street professionals to prepare for a summer pullback, the latest Markets Live Pulse (MLIV Pulse) survey shows that respondents expect the latest round of corporate earnings reports to boost the S&P 500 Index.

With the arrival of the US stock earnings season, major companies such as Tesla (TSLA.US) and Alphabet (GOOGL.US) will announce their earnings in the coming days. Among the 463 respondents, nearly two-thirds expect the earnings reports to boost the benchmark index of the US stock market. About half of the respondents predict that the performance of US companies in the coming months will be better than the first half of the year.

Optimism about corporate earnings reaches historic highs

Andrew Tyler, head of market intelligence for JP Morgan in the US, stated in the report that he expects positive earnings catalysts to lift the S&P 500 Index out of its trough, especially as analysts' forecasts for the so-called "Big Seven," including Microsoft (MSFT.US), Amazon (AMZN.US), Meta (META.US), Apple (AAPL.US), Alphabet (GOOGL.US), Nvidia (NVDA.US), and Tesla (TSLA.US), suggest "another strong quarter." Earnings for these companies in the second quarter are expected to increase by about 30% year-on-year.

Optimistic earnings will be the much-needed driver for the US stock market, as the S&P 500 Index has been consolidating after a strong rise in the first half of this year. The US stock market is facing pressure from seasonal weakness, with uncertainty surrounding the US presidential election potentially exacerbating volatility.

Concerns about overvaluation (especially in tech stocks) are also worrying investors. Considering this, about 70% of respondents stated that they do not plan to increase their investments in large US tech companies in the second half of this year.

Tech giants are losing their appeal

Michael Sansoterra, Chief Investment Officer of Silvant Capital Management, stated that the recent decline in US stock indices is more of a "shift" than a "plunge." In his view, companies in the artificial intelligence sector are still spending, allowing the AI story to continue to drive the rise of tech stocks. Since 2019, Sansoterra has held Nvidia's stock in at least one of the company's funds Sansoterra said, "We expect profits to perform well. We anticipate this quarter's performance to be more similar to the previous quarter, with companies of the same type excelling for the same reasons."

Last week, concerns about trade restrictions triggered a sell-off in semiconductor stocks, causing investors to withdraw from large-cap stocks and turn to small-cap stocks, leading to a significant decline in US technology stocks.

Goldman Sachs' strategic strategist Scott Rubner believes that these fluctuations mark the beginning of a summer market adjustment, driven by seasonal weakness, tight positions, and the fact that all positive news has already been priced in by the market.

Kevin Gordon, senior investment strategist at Jiaxin Wealth Management, stated, "Corporate earnings can help stabilize the situation, but I'm not sure if it will be a huge catalyst. Historically, the range of corporate profit growth we are entering is consistent with the moderate growth of the S&P 500 index."

"There's nothing to fear, but considering that the strongest rallies often occur when profits emerge from a recession, this makes sense," he added. "This situation has already occurred, so now that the profit cycle is maturing, the market has seen through this."

Dave Mazza, CEO of Roundhill Investments, mentioned that the threshold for technology stocks is the highest. While he remains generally optimistic about the market, he stated, "Unless we see truly amazing performance, I don't think this is enough to offset this adjustment in the short term."

With US Vice President Kamala Harris potentially replacing current President Joe Biden as the Democratic presidential candidate, headlines about the US presidential election are increasing. However, most survey participants indicate that their stock positions are not dependent on the election outcome.

Bloomberg Intelligence strategists Gina Martin Adams and Michael Casper noted that historically, the second half of election years favors the S&P 500 index. According to their data, since 1928, the benchmark index has averaged a 5.2% increase in the third quarter of election years, with a positive return rate 62.5% of the time