Helen Jewell, Chief Investment Officer at BlackRock Fundamental Equities EMEA, suggests that while global corporate earnings estimates for the remainder of the year appear optimistic, stock markets can likely absorb moderate downgrades for now. Jewell notes that profit projections for 2024 have been “back-ended” into the second half, indicating potential adjustments on the horizon.
Market Valuations and Profit Adjustments
Jewell commented that while profit estimates might see slight reductions, this does not necessarily equate to a market decline. She emphasized that current valuations are “not crazily high,” suggesting that a reduction in earnings could lead to an increase in price multiples to balance market expectations.
Resilient Equity Markets Amid Concerns
Despite worries surrounding a possible recession and weakening consumer demand, equities have performed well this year. Analysts now anticipate a 9% rise in S&P 500 profits for 2024, a slight decrease from the 11% forecast made in December, according to Bloomberg Intelligence data.
Growth Expectations for 2024
Profit growth is predicted to decelerate to 4.4% in the third quarter but is expected to rebound with a 10% increase in the final quarter. A Citigroup index highlights that since late June, more analysts have downgraded than upgraded global earnings expectations.
Record Highs for Global Indices
The MSCI All-Country World Index is nearing record highs, buoyed by optimism surrounding the Federal Reserve’s potential interest rate cuts aimed at avoiding an economic downturn. Currently, the index trades at 18 times forward earnings, above its 20-year average of nearly 15.
Earnings Estimates Remain High
Despite these fluctuations, analysts’ earnings estimates for the next 12 months remain at all-time highs, signaling confidence in achieving a soft economic landing. Projections indicate that U.S. real GDP growth is expected to slow to 1.7% in 2025 before rebounding the following year.
European Market Dynamics
In Europe, however, earnings forecasts for Stoxx 600 companies have dipped by 2.8% since the start of the year, reflecting broader regional economic challenges.
Investment Preferences Amid Uncertainty
Jewell maintains a preference for economy-linked stocks and sectors poised to benefit from advancements in artificial intelligence over the long term. In the near term, she recommends focusing on interest rate-sensitive stocks and defensive sectors perceived as safer during economic uncertainty.
Potential Risks Ahead
Looking forward, Jewell anticipates that equities will remain sensitive to market fluctuations, especially with upcoming events like the U.S. presidential election potentially introducing volatility. A significant risk for 2025 lies in the magnitude of potential cuts to profit forecasts. Jewell warned that if substantial downgrades occur, it could lead to a market decline.
Conclusion
Overall, while current market conditions show resilience, the balance between earnings expectations and economic realities will be crucial in determining future performance. Jewell’s insights underline the importance of staying attuned to market signals and adapting investment strategies accordingly as economic conditions evolve.
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