The US Stock Market Rose Thanks to Big Tech and Better-than-expected Earnings

The recent earnings season has provided investors with compelling reasons to channel funds into stocks, even amid growing concerns about the economy and uncertainty regarding the Federal Reserve's potential interest-rate adjustments. Despite the prevailing unease, results for the final quarter of 2023 underscored continued corporate resilience. Notably, balance sheets remained robust, Big Tech companies exhibited continued strength, and operating margins stayed steady as firms implemented cost-cutting measures. Overall, Corporate America concluded the year on a surprisingly strong note, defying recession fears.

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Robert Conzo, CEO of The Wealth Alliance, observed that many companies have become highly efficient, contributing to their impressive performance and bolstering optimism about the American economy's future. As these firms continue to operate efficiently, coupled with potential interest rate adjustments, the outlook appears promising.

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Key Takeaways from the Earnings Season:

Better-than-Anticipated Results:

Nearly all S&P 500 companies have reported their fourth-quarter earnings, surpassing expectations. Earnings growth reached nearly 8%, far exceeding the anticipated 1.2% rise.

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Approximately 76% of firms exceeded expectations, outperforming the 10-year average of 74%, providing a strong boost to equities. This positive trend countered macroeconomic uncertainties and delayed expectations for Fed interest-rate cuts.

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Nvidia's Leading Role in Big Tech:

Nvidia Corp.'s standout earnings were a highlight of the season, allaying concerns about a potential slowdown in artificial intelligence growth.

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The Magnificent Seven tech companies, including Apple Inc. and Meta Platforms Inc., recorded a 59% rise in profits in the fourth quarter, contributing significantly to the S&P 500's overall results.

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Improved Margins through Layoffs:

Operating margins varied among S&P firms, with 45% reporting margins exceeding estimates. However, corporate net income margins aligned closely with the one-year average of 67%.

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Many companies achieved better margins through expense reductions, including significant job cuts. Layoffs were mentioned on earnings calls at the highest rate since the pandemic, contributing to improved efficiency and margin performance.

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Guidance as a Decisive Factor:

Forward-looking guidance played a crucial role, with firms revising their future outlooks posting gains of approximately 3% relative to the S&P 500.

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Investor reactions were more volatile this quarter, with beats and misses prompting higher-than-usual next-day moves, influenced by forward-looking guidance.

Europe's Lagging Performance:

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Earnings in Europe trailed those in the U.S., with Stoxx 600 profits dropping 11% in the fourth quarter, compared to an 8% rise in the U.S.

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The absence of technology mega-stars in Europe, a sputtering regional economy, and an underwhelming recovery in China contributed to lackluster results.

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Skepticism about Europe's Outlook:

Some fund managers express doubts about Europe's earnings outperforming the U.S. this year, citing the need for a re-acceleration in global growth, particularly outside the U.S., for a more positive outlook.

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In conclusion, despite prevailing economic concerns and uncertainties, the recent earnings season demonstrated the resilience and strength of Corporate America. While global disparities persist, with Europe lagging behind the U.S., the overall positive performance of U.S. companies contributes to optimism about the future.

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