BMO: US stocks avoid "profit doomsday" and pave the way for a year-end rebound

Zhitong App has learned that Brian Belski, Chief Investment Strategist at BMO, stated that the US stock market has just avoided the "earnings doomsday" after the release of third-quarter results, which should lay the foundation for further gains before the end of the year.

Belski said that despite the market rebound, investors remain pessimistic. He said, "Despite the impressive gains in the stock market so far this month, there is still a strong negative sentiment and concern about the market trend."

However, this negative sentiment is expected to become a driving force in the market. Belski said, "We continue to believe that this is a bull market, and the path of least resistance is for stock prices to rise before the end of the year." He also stated, "The extremely strong start in 2023 has provided a cushion for the recent weakness, and a strong start usually leads to sustained gains, even if there are bumps along the way."

Belski emphasized that investors are overlooking the resilience of corporate earnings, especially considering that many people believe this year's earnings expectations are too high.

But after a brief earnings decline, companies have started to show profits.

94% of S&P 500 index component companies have reported their third-quarter earnings, with 83% of companies exceeding profit expectations. Meanwhile, according to data from Fundstrat, excluding the energy sector, earnings per share for S&P 500 index component stocks in the third quarter are expected to grow by 11%.

"The earnings doomsday did not happen. Despite concerns about overly high earnings expectations this year, the overall earnings for the first three quarters have exceeded expectations by a much larger margin than the average. The proportion of profitable companies is also close to a historical high, indicating an optimistic trend."

Belski said that these strong performances have laid a solid foundation for the continued rise of the stock market in the coming months, especially benefiting from the seasonal tailwinds in the last two months of the year and the significant improvement in market breadth.

Belski said, "Compared to the first half of 2023, the number of S&P 500 index component stocks outperforming the market in the second half of the year has increased from 146 to 193, accounting for nearly 10% of the index component stocks."

This is an encouraging sign, as more stocks rebound, which should help sustain the current bull market.