Strategists at the BlackRock Investment Institute warned in a report on Monday local time that investors looking for US corporate earnings growth to revive the benchmark S&P 500 index's rise may ultimately be disappointed as inflation remains unstable.
The S&P 500 index fell further by 0.2% on Monday, and has now fallen nearly 8% from its high in July. This is because the recent sell-off in the bond market has led to a 16 year high in US Treasury yields, weakening investors' enthusiasm for buying stocks.
The BlackRock Investment Research Institute pointed out that "US corporate profits have stabilized along with the economy. A large number of stocks have started to adapt to the new normal of greater volatility, but they have not been fully priced in the macro bearish situation we expected
However, the institution also pointed out that although it will reduce its holdings in a large number of stocks in the next 6 to 12 months, it still remains optimistic about technology companies with large market capitalization - they have a bright future in the AI field. In addition, the institution is also bullish on healthcare stocks and Japanese stocks.
The BlackRock Investment Research Institute believes that the current risks faced by US stocks include: as the mismatch in spending on goods and services during the pandemic normalizes, the company will lose pricing power; The tightening of the labor market will drive up wages and keep inflation above the Federal Reserve's target of 2%.
The institution pointed out that overall, stock valuations appear to be on the high side, especially considering the high yields in the bond market. From a relative risk perspective, bond yields are also more attractive than stocks.
Undoubtedly, as US stock investors closely monitor financial reports this week to find signs of whether the US economy remains resilient despite rising interest rates, BlackRock, the world's largest asset management company, is making bearish calls.
According to data from LSEG IBES, the earnings of S&P 500 index stocks in the third quarter are expected to increase by 1.3% compared to the same period last year. This will be the first time that the company's profit growth has rebounded after three consecutive quarters of flat or declining growth.
This week, Microsoft, Google's parent company Alphabet, Amazon, and Meta will each release Q3 financial reports, while Apple and Nvidia will release financial reports next month.
According to LSEG data, overall, the annual profits of these giant companies are expected to increase by 32.8%, while other companies in the S&P 500 index are expected to decline by 2.3% during the same period.