US earnings season may be ‘make or break’ for stocks

US earnings season may be a make or break moment for stocks. So says Barclays, after earnings season kicked off last week with earnings reports from JPMorgan, Citigroup and PepsiCo.

Expectations are low, with earnings projected to fall 7.2 per cent – the largest quarterly decline since the Covid-related profits collapse of mid-2020. European estimates are expected to suffer an even sharper 13 per cent decline.

The good news, says Barclays, is this represents a “low bar” for stocks, one they should clear.

Still, it might not be plain sailing. Barclays says rising stock prices of late have largely been down to positioning, with reluctant investors forced to chase stocks higher, but better-than-expected earnings also provided “some fundamental support” to stocks. With stock prices having reconnected with earnings expectations, there is “less of a cushion” – hence the potential for this being a “make it or break it” moment for stocks. Overall, Barclays reckons stocks will likely “continue to grind higher” through summer so long as earnings and guidance don’t disappoint much.

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However, 2024 expectations – excluding energy, US and euro zone earnings are projected to grow 12.4 and 9.9 per cent respectively – “look a stretch”. Estimates aside, FactSet data shows US stocks are trading above their five- and 10-year averages. Unless there is a “big upward surprise” to growth expectations, says Barclays, further market upside may be limited.