The stock market may ignore this "bad news" as it starts making profits

Publication date: October. November 23, 2023 at 2:32 PM ET

BlackRock strategists aren’t holding their breath for US corporate earnings to finally turn positive in the third quarter.

While many investors had hoped the S&P 500 SPX would finally shake off a string of negative quarters to post slightly positive earnings growth in the third quarter, a team of strategists at BlackRock Investment Institute suspects earnings growth will remain fairly stagnant for some time. (See chart).

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BlackRock strategists aren’t holding their breath for US corporate earnings to finally turn positive in the third quarter.

Their chart also highlights a major theme for 2023 in which a small group of big tech stocks continued their stock gains. Among these companies is Microsoft.

MSFT

and Alphabet Inc, the parent company of Google.

Google

It will report earnings on Tuesday, followed by Meta Platforms Inc.

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And Amazon.com Inc.

Amzn

Later this week. Tesla company

TSLA

reported earnings last week, while Apple Inc.

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He is scheduled to report early next month.

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“Markets expect year-on-year earnings growth to turn slightly positive in the third quarter. We believe hopes for a long-awaited recovery mask a growth trend that remains relatively stagnant,” wrote Wei Li, global chief investment strategist, along with the BlackRock team. Investment, in a note to clients on Monday.

“Modest earnings growth does not reflect the market’s narrative of a resilient economy either, in our view.”

Instead, they view the “hidden recession” over the past 18 months as “under the radar” because consumer spending, GDP and job growth have remained resilient, masking the problem.

But with the 10-year Treasury yield BX:TMUBMUSD10Y briefly rising to 5% on Monday for the first time in 16 years, markets are “converging on our view of interest rates remaining higher for longer in the new regime,” the team said.

To this end, the team overweights short-term Treasuries BX:TMUBMUSD01M, but also likes quality in equities and fixed income. They also believe there is still upside in artificial intelligence, investing in renewed globalization, the transition to a low-carbon economy and the future of finance.

Stocks were flat to slightly higher on Monday, but the S&P 500, Dow Jones Industrial Average (DJIA) and Nasdaq Composite

It was on pace for monthly losses in October, according to FactSet.

The S&P 500 was expected to post earnings growth of 1.1% in the third quarter year over year, according to LSEG I/B/E/S.

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