Bumper earnings will broaden a narrow tech-led stocks rally, analysts say
By Patturaja Murugaboopathy and Gaurav Dogra
(Reuters) — A handful of technology firms and last year’s laggards have so far driven the heady rise in U.S. and global stock markets this year, but bumper earnings surprises could now lift more sectors and stocks and broaden the rally, analysts say.
Analysts point to receding recession concerns and the prospect of a less aggressive policy stance from the U.S. Federal Reserve as factors fuelling hopes for a broader market rally.
According to a Reuters analysis, just 10% of the biggest gainers in the MSCI World index constituents have accounted for around 72% of the rally this year.
That compares with a much broader rally in past years, when the top 10% winners only made up 14% of the overall market upside from March 2020 to early 2022.
The tailwind for a broader rally could be earnings.
The second quarter earnings season has started positively for cyclical sectors, with over a quarter of the global companies announcing their results so far, Refinitiv Eikon data showed.
About 67% of consumer discretionary sector firms exceeded consensus net income expectations, primarily due to robust consumer spending. Meanwhile, 64% of industrial firms surpassed analyst projections for net profits.
U.S. banks have also posted solid second-quarter profits, thanks to a rise in interest margins. Moreover, analysts expect robust deal-making activity in the second half, which could boost investment banking revenues.
«The upcoming earnings season has the potential to broaden the rally for sure. Earnings surprises — to the upside – from a wider breadth of stocks is likely to make investors consider names outside the cohort (of tech stocks),» said Puneet Singh, director of quantitative research at
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