According to this article, Bank of America predicts that corporate earnings will continue to grow over the next few years, while cash reserves of private equity and venture capital firms will remain at record levels, meaning investors will likely have more money to put into the stock market, driving stock prices higher. At the same time, market expectations of interest rate cuts by the Federal Reserve and corporate cost cuts also bode well for a potentially stronger U.S. stock market in 2024.
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Caixin, April 25 (Editor Huang Junzhi) — The U.S. stock market is expected to rebound strongly in 2024 as trillions of dollars of idle money will be invested as corporate earnings are impressive, according to a new report released Monday by Bank of America.
The bank stressed that as long as credit conditions do not deteriorate further, corporate earnings growth should outpace economic growth next year. Bank of America strategists, led by Savita Subramanian, believe that the market’s recent expectations of interest rate cuts by the Federal Reserve, as well as cost-cutting across businesses, portend a potentially stronger U.S. stock market in 2024, coupled with a possible boost from fiscal stimulus next year.
“Historically, earnings growth has recovered faster than it has declined.” They write.
In fact, earnings have been better than expected this quarter. So far, 25 percent of S&P 500 component companies have reported first-quarter results, with 68 percent beating profit estimates and 75 percent beating sales estimates, both above historical averages.
Bank of America sees this as a good sign of continued earnings growth, and the large amount of macro headwinds companies are currently facing will likely dissipate next year.
“Earnings growth will likely outpace economic growth through 2024, as earnings declines began in the recession of the current cycle. Earnings also tend to recover more strongly than declines, as downturns typically eliminate excess capacity, thereby reducing cost structures and improving margins.” The analysts explained.
Despite the collapse of Silicon Valley Bank (SVB) last month, the credit environment is likely to remain stable if private equity and venture capital firms tap into their $2.2 trillion in cash reserves.
“Liquidity from central banks, governments and banks may be waning, but venture capital/private equity firms’ cash reserves remain at record levels,” the report said.
Moreover, private equity firms aren’t the only ones hoarding cash. Investors have poured a record $5 trillion into money market funds.
While such risk-free returns are attractive to investors, a strong rally in risky assets could prompt some of the money to flow back into the stock market, helping to push up stock prices, Bank of America noted.
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