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BlackRock Commentary: Earnings growth not just about tech

Wei Li – Global Chief Investment Strategist of BlackRock Investment Institute together with Carrie King – Chief Investment Officer of U.S. and Developed Markets, Fundamental Equities, Natalie Gill – Portfolio Strategist and Carolina Martinez Arevalo – Portfolio Research all forming part of the BlackRock Investment Institute share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

Key Points

Earnings set to broaden: As Q1 earnings season starts, we eye signs of earnings growth broadening beyond tech stocks to industrials and others. We stay overweight U.S. equities.

Market backdrop: Crude oil prices rose, partly on heightened tensions in the Middle East. We are monitoring the risk of escalation – and potential impact on oil and inflation.

Week ahead: We’re watching U.S. retail sales for an update on the strength of consumer spending after some signs of fatigue in recent confidence indicators.

Solid U.S. economic and corporate earnings growth have supported risk appetite, driving stocks to all-time highs – even as bond yields have jumped. We think earnings will need to deliver on high expectations, especially after last week’s data showing sticky inflation spooked investors. As Q1 results start, we look for brighter earnings in sectors beyond tech, like industrials and materials, as the economy holds up. We stay overweight U.S. stocks while monitoring Middle East tensions.

Solid job gains have supported overall U.S. economic growth. That has helped companies maintain profit margins. Strong growth and resilient profit margins, especially in tech, have combined to help U.S. corporate earnings broadly. Yet the earnings outlook by sector is more nuanced. The consumer goods and tech sectors have driven earnings growth in the past 12 months. See the chart. For Q1 earnings results now underway, we expect further strength for tech and other artificial intelligence (AI) beneficiaries. Yet we see earnings growth broadening out as consumers start to show some signs of fatigue and demand improves in other sectors. Earnings for energy and commodity producers are picking up after a rough two years. We think higher commodity prices can persist and boost both, with the FTSE/CoreCommodity CRB index up 14% this year and near a decade high.

Recovery beyond tech

This recovery in sectors beyond tech is part of the broadening out of stock index performance that we expected. That’s one reason we went overweight overall U.S. stocks on a tactical horizon of six to 12 months earlier this year, while still preferring AI beneficiaries. We think market sentiment can stay upbeat if falling goods prices keep dragging down inflation – allowing the Federal Reserve to deliver one or two rate cuts. Yet the March acceleration in core services inflation, excluding housing, suggests overall core inflation could rise again sooner than we had expected. The tensions in the Middle East look contained for now but we see risks of further escalation. We could face elevated oil and commodity prices for longer, reinforcing the new regime of higher inflation – and our long-held view that we are in a higher-for-longer interest rate environment.

The question for stocks: will economic and earnings growth stay strong enough to offset that inflation and policy rate outlook? Surprisingly robust consumer spending has propped up growth. We see a switch ahead: consumer spending could slow as households exhaust pandemic savings, while companies keep investing in factories from government incentives such as the Inflation Reduction Act. We see earnings forecasts holding up this year – but companies will need to deliver on high expectations. Analysts see 2024 earnings growth of 11% – above the 7% historical average, according to LSEG data.

We expect sector performance to diverge and like the industrial, materials and energy sectors over consumer goods. Commodity production has been cut alongside better-than-expected demand. Mega forces – structural changes driving returns now and in the future – also play a role. Prices of metals key to the low-carbon transition, like copper, have rebounded and could rise further. We see AI advances stoking the buildout of data centers, resulting in major commodity demand. Companies bringing production closer to home can boost industrials. We see energy stocks as a potential portfolio buffer against geopolitical risk and think long-term U.S. bonds are less effective in this higher inflation environment.

Our bottom line

We expect earnings to broaden in sectors beyond tech and still like AI beneficiaries. We’re overweight U.S. stocks. We look for selective sector opportunities in industrials, commodities, healthcare and energy.

Market backdrop

U.S. crude oil prices hit six-month highs, partly on heightened tensions in the Middle East. We are watching developments closely after Iran’s strikes in Israel over the weekend and see heightened geopolitical risks adding to economic volatility. U.S. stocks fell nearly 2% last week and 10-year Treasury yields pulled back after hitting 2024 highs near 4.60% after the March CPI report. The reported showed services inflation may put upward pressure on overall inflation sooner than we thought. 

This week, we track Q1 earnings now underway – and expect earnings growth to broaden out beyond tech. We look for Monday’s U.S. retail sales to shed light on the strength of consumer spending after some signs of fatigue in sentiment data. We also eye China’s Q1 GDP for any signs that growth is starting to pick up from its weak state. We also get inflation data in both Japan and the UK. Markets have trimmed expectations for multiple Bank of England rate cuts.

Week Ahead

April 15: U.S. retail sales

April 16: Japan trade data, UK CPI

April 17: China Q1 GDP, UK unemployment

April 10-17: Japan CPI


BlackRock’s Key risks & Disclaimers:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of 15th April, 2024 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.


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BlackRock anticipates that the new macroeconomic environment, characterized by increased volatility, will lead to more frequent valuation changes across asset classes. While short-term outcomes may not always be influenced by valuations, they remain significant in the long run.

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