American CEOs are signaling that corporate earnings may have reached their lowest point. This earnings season shows signs that the rally in U.S. stocks could expand beyond just technology shares.
According to Bank of America, mentions of a “bottom” in earnings reports have increased by 56% compared to the same period last year. In the past, when companies talk about hitting a bottom, it often leads to a broad improvement in earnings.
Cyclical companies—those whose success is closely tied to the health of the economy—are among the firms that have reported earnings. If these companies start to show better results, it could be a positive development for investors who are worried about technology shares dominating the market. This year, the stock market has repeatedly reached new records, mainly driven by tech stocks.
The need for a broader market rally is growing, especially since large tech companies are expected to show slower profit growth on average. These tech giants, including Alphabet Inc., are set to release their earnings reports starting after Tuesday’s market close.
“We feel that third-quarter earnings for many cyclical companies represent a bottom,” said Joe Gilbert, a portfolio manager at Integrity Asset Management. “This doesn’t mean we’re about to see earnings estimates shoot up, but it gives us confidence that the environment isn’t going to get worse.”
Cyclical sectors have faced tough times recently. They have struggled with weak demand and higher inventories after the Federal Reserve raised interest rates to the highest levels in decades to fight inflation. Now, with the central bank easing its policies and the economy remaining strong, the outlook for these companies is improving.
