- Investors shouldn't be so down on corporate earnings as first-quarter results handily beat estimates, BofA said.
- BofA raised its 2023 S&P 500 EPS forecast by 8% and introduced a new 2024 forecast that suggests 9% growth.
- But there are two looming risks that could ultimately rattle the economy and the stock market.
First-quarter earnings results are in, and $4 than Wall Street analysts expected.
Bank of America's Ohsung Kwon said in a Thursday note that corporate America's ability to quickly adapt to a volatile macro environment means investors shouldn't be so negative on the economy given that earnings results beat estimates by 5% as companies $4
"A strong first-quarter once again showed corporate America's ability to preserve margins," Kwon said, highlighting the fact $4
The bank upgraded its $4 2023 earnings per share estimate to $215 from $200 due to the first-quarter earnings strength, representing an increase of 8%. Additionally, Kwon introduced the bank's 2024 S&P 500 EPS estimate at $235, which would represent annual growth of 9%.
"Earnings typically recover stronger than they fall and we expect 2024 to be a better profit environment after companies' focus on efficiency and productivity," Kwon said, adding that a weaker US dollar could also help boost profit growth next year.
Additional upside drivers to corporate profits, the economy, and the stock market include a new capital expenditure cycle that leads to big investments from companies, with an estimated $600 billion in mega projects being announced since January 2021, according to the note.
While the capital expenditure boom is $4 in which companies bring some or all of their production and sourcing capabilities back into America, some is also being driven by over $550 billion in fiscal stimulus that stems from the bipartisan infrastructure bill.
These factors pale in comparison to the main factor that helped boost corporate profits over the past decade: $4
"We expect productivity-led earnings growth ahead, rather than financially engineered growth from the last decade," Kwon said.
But there are still two big, long-term risks that could negatively impact the economy and stock market, according to Kwon.
Those risks are the rising trend of de-globalization and refinancing risks due to higher interest rates.
"We are coming out of the best 20-year period for earnings growth, which began with China joining the WTO in 2001. De-globalization is a big secular risk, which drove most of the margin improvement over the past 20 years," Kwon explained.
And while about 75% of corporate America's current debt burden is fixed at historically low interest rates, higher interest rates could still be a headwind for certain sectors, like Real Estate and Industrials, if the Federal Reserve doesn't cut rates in the foreseeable future.
And $4 suggest a lot needs to happen for interest rates to be cut anytime soon.