Morgan Stanley’s Wilson sees profit boost for U.S. stocks beyond tech

“We expect the broadening to continue driven by earnings resiliency from the median stock,” Michael Wilson wrote in a note. Photo by Eva Marie Uzcategui/Bloomberg

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The team led by Michael Wilson said the median S&P 1500 Composite index constituent is generating earnings-per-share growth of more than 10 per cent, the best performance since the post-COVID pandemic recovery.

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Moreover, analysts continue to upgrade profit estimates for the consumer discretionary and transport sectors, both of which are closely linked with economic growth, the strategists said.

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“We expect the broadening to continue driven by earnings resiliency from the median stock,” Wilson wrote in a note.

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The second-quarter earnings season kicks off on Tuesday with reports from the big banks. Analysts expect S&P 500 companies to post a 23 per cent jump in profits, according to data compiled by Bloomberg Intelligence, which would be among the best readings ever outside of recoveries from major recessions.

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That sets a high bar for equity benchmarks trading near their all-time peaks. The focus will again be on technology stocks for clues on artificial intelligence demand, and whether the outlook is robust enough to support elevated valuations for the semiconductor sector.

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Investors are also waiting to hear from the big spenders on AI infrastructure — the so-called hyperscalers. The group has largely missed out on this year’s rally in the S&P 500 over concerns that hefty capital expenditure may not pay off.

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An S&P 500 chart

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In fact, the equal-weighted S&P 500 index, which dilutes the impact of the tech behemoths, is outperforming the market-capitalization weighted gauge for the first time since 2022.

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Still, some highlight the strength of tech sector earnings. RBC Capital Markets strategist Lori Calvasina raised the sector to overweight, citing strong upgrades in both revenue and earnings estimates as well as a resumption in fund inflows.

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“Tech valuations admittedly aren’t cheap, but in our latest update the sector is only slightly above the long-term average on median absolute and relative P/E (price-to-earnings),” Calvasina wrote in a note.

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