Wall Street’s profit must grow by 10% to avoid infusing the market into further falls in the stock market

In a month in which Donald Trump will take office as President of the United States and in which the first central bank meetings of 2025 will take place, the stock market starts January with falls and the fear of seeing a collapse in the stock market. Now the pressure moves to the results season, which holds the key to turning around the equity market. The main Wall Street companies will present their business results for the last quarter of 2024 in January, in which a profit per share of $61.8 is expected. With this new increase, the S&P 500 would close the year as a whole with a year-on-year growth of 10% which, if not fulfilled, could encourage more falls on Wall Street.

Wall Street’s main index would reach a profit per share of $236.3 in 2024, according to the market consensus it includes Bloombergand thanks to the momentum of the last quarter that will beat previous periods. In fact, it will be the fourth consecutive time that the quarterly profit of the S&P 500 exceeds the previous one.

With the same forecasts, the market is expecting that it will be technology (15.5%) and the telecommunications sector (21.8%) that will register the greatest increases in profits in this period, the latter being the group that, on average, the more it increases its net profit with respect to its current trading price.

In a period that has designated dates for consumption such as Christmas or Black Friday, goods and services companies non-essential services will grow more than the S&P 500 itself. The financial sector (with commercial banks, investment banks and insurers) will also increase its profits by 8% despite the fact that commercial entities see a decrease in their net interest profits with the cut in interest rates in the United States.

On the other hand, the fall in the prices of energy raw materials will cut the profits of companies in the sector on Wall Street, which will see a year-on-year drop in their profit from September to December of 27%.

These cases do not cloud the evolution of the S&P 500, which has shown, to date, that the profits of companies listed in the United States continue to rise and are surpassed in a context of high financing costs. Also despite the poor growth in other regions of the world, such as China, which can affect the sales of the most internationalized companies.

The first to demonstrate whether the market is sinning of optimist or it will not be the big investment banks. As is usually the case, BlackRock, JP Morgan and Citigroup will be among the first to close the year by presenting their accounts until December this Wednesday, January 15 (see chart). A day later it will be the turn of Bank of America and Morgan Stanley, among others. A priori, all of them are expected to register a period of growth with JP Morgan as the company that would see the smallest increase in earnings per share (13%) and Goldman Sachs the one that will more than almost double its multiplier compared to the same period in 2023. .

But as is also usual, the market awaits the results of the large capitalized companies on Wall Street that are within the group of technology companies known as The Magnificent Seven. At this point, it will be Amazon the one that publishes the biggest jump in its profit net with respect to its listing price (greater than 80%, according to the estimates of Bloomberg) followed by Alphabet, which will record $2.2 per share, a jump of more than 26%. Of course, it will not be until the end of January when the publication of the fourth quarter of all these companies arrives.

‘Misleading readings’ in 2025

With the arrival of Donald Trump, S&P 500 companies will find a new incentive to continue expanding their profits by coexisting with more flexible taxation (if the Republican president fulfills what he promised during the election campaign) and if the trade war does not end by turn against the American economy. The evolution of the dollar can also affect the income of Wall Street companies more exposed to other currencies between September and December of last year, although the use of hedging to avoid fluctuations in the market is common.

Another challenge that the Wall Street stock market faces is to comply with the high expectations of analysis firms with the S&P 500 within 5% of its all-time highs and a PER (times that the profit is included in the listing price) of 24.6 times. That is, with a premium 25% higher than its average for the last ten years, discounting the effect of 2020 due to the pandemic. “Despite good forecasts, companies will have to deal with multiple risks. With high valuations and high returns, the margin to exceed expectations is small, and investors will be especially sensitive to any disappointment in sales, which are a direct reflection of operational health,” commented eToro analyst Javier Molina.

In 2025, Wall Street earnings growth is expected to maintain its expansion with inflation controlled at current levels or even below if the US Federal Reserve keeps its interest rates higher than expected, as the market It is only considering two cuts of 25 basis points each for this year. The first quarter of 2025 will leave an earnings per share of $62.4 in the S&P 500, according to market consensus, while in For the whole year they would exceed 270 dollars (15% higher than what is expected for 2024).

Another factor to consider is that, in 2025, the results of larger capitalization companies, such as Nvidia, will begin to present quarterly results that will be compared with their results from one or two years ago and may give rise to misleading readings (they will continue to grow , but at a different pace). “There were years of runaway growth and huge profits in megacapitalizedwhile the rest of the market will be subject to more favorable comparisons after two years of contraction in corporate results,” commented Wellington Management macroeconomic strategist Nicolas Wylenzek.

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