For several months, earnings momentum in the US has been negative, but the trend is finally reversing.
Earnings momentum is the rate at which analysts revise their forecasts for corporate earnings upwards or downwards.
When earnings momentum improves, it means that the economic and profit outlook is becoming more favorable, which often supports stock markets.
According to a Citigroup indicator, earnings revisions returned to positive territory for the first time in six months, signalling a potential increase in estimates.
HSBC strategists note that expectations for US cyclical stocks have probably bottomed out.
Earnings season turned out much better than expected, with 77% of S&P 500 companies reporting positive first-quarter surprises.
Earnings growth reached 13.1%, compared with only 6.6% anticipated before the season, forcing analysts to revise their forecasts.
Goldman Sachs raised its earnings growth forecast to 7% for 2025 and 2026, compared with 3% and 6% previously.
This improvement is being driven by a stronger-than-expected US economy and the easing of trade tensions.
Indeed, the announcement of a trade agreement with the UK and the temporary appeasement between the US and China have reduced fears of recession (which is not our scenario at Mirabaud).
However, tariff uncertainties had weighed heavily on some companies, notably in the automotive, durable goods and industrial sectors.
The dollar's recent weakness could also continue to support US earnings relative to other regions such as the eurozone.
Finally, investor sentiment on global growth improved markedly in April, according to a Bank of America survey.
All this is fuelling a more favourable backdrop for US equities, despite the ever-present risks to the economy.
Beware, however, that the markets appear to be overbought in the short term.
