S&P 500, Q2 Profit Surges 50%...Expectations for 8,000 Mark Entry in August ↑

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The forecast that the S&P500 could rise to the 8,000 mark this month is gaining traction. Analysis suggests that the earnings growth, which has spread across all sectors rather than being concentrated in tech stocks, is pushing up the bull market.

CNBC reported on August 6 (local time) that the S&P500's Q2 earnings growth rate reached approximately 50%, with market forecasts continually being revised upwards. Even excluding investment gains from Alphabet (GOOGL) and Amazon (AMZN), the growth rate is 31%. This is significantly higher than the 24.4% forecast as of July 1.

Josh Brown, CEO of Ritholtz Wealth Management, diagnosed that the current bull market is driven by corporate earnings growth, not by an expansion in price-to-earnings ratios. Even excluding one-time investment gains, the S&P500's earnings growth rate for the next quarter is expected to be 28.8%. While the average adjustment rate for earnings forecasts in the first month of a quarter over the past 20 years was -1.9%, this quarter saw the forecast for the next quarter revised up by 2.1%. Brown stated, “This year’s market is an earnings-driven market.”

Earnings improvement was not limited to a few large tech stocks. All 11 sectors of the S&P500 saw year-over-year revenue increases, with the overall revenue growth rate recorded at 14%. Brown emphasized, “Profits can be dressed up with accounting, but revenue cannot be deceived.” The Q2 earnings per share (EPS) growth rate, excluding investment gains, also reached 21%.

The expansion of artificial intelligence investments by the four major cloud companies, including Microsoft (MSFT), Amazon, Alphabet, and Meta (META), is spilling over into other sectors. A CNBC panel analyzed that the demand for data center construction is boosting the performance of industrial companies like Caterpillar (CAT). Insurance companies such as Allstate (ALL) and MetLife (MET) are also utilizing AI to lower costs and improve operating profit margins, they explained.

However, the fact that large cloud companies brought forward their purchasing volumes for next year to this year is a variable for future performance. The panel pointed out that while AI investments and profit growth are likely to support the stock market until the end of this year, if these accelerated investments slow down next year, the growth rate of related companies could also decrease. In the short term, they maintained the outlook that the S&P500 could reach between 7,900 and 8,000.

[Key Article Summary]

-The S&P500’s Q2 earnings growth rate was approximately 50%, recording 31% even when excluding one-time investment gains.

-All 11 sectors saw increased revenue, with the overall revenue growth rate recorded at 14%.

-Wall Street presented the possibility of the S&P500 reaching the 8,000 mark this month, based on strong earnings and AI investments.

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