Investors eyeing the upcoming earnings season for the S&P 500 may find a favorable opportunity for buying on dips in mid-August, according to the latest analysis from LPL Financial.
Analysts on Wall Street are generally optimistic about the second quarter’s earnings reports, with consensus estimates pointing to a robust 9% increase in earnings per share (EPS) for S&P 500 companies compared to the same period last year. While upbeat earnings expectations do not guarantee direct stock price appreciation, several signals suggest a potential pullback in the market.
Economic surprise indices from Bloomberg and Citigroup have declined recently, indicating a possible basis for an impending market correction. Additionally, the ISM Manufacturing Purchasing Managers’ Index for June fell below market expectations, hinting at a cooling economy.
Taking these signals into account, LPL Financial’s analysis does not adopt an overly optimistic outlook on the stock market’s trajectory. Instead, they recommend a buy-on-dip strategy during correction phases following downward movements. The adjustment phase may occur around August as the robust earnings season materializes.
Historical data indicates that stock performance tends to be stronger in the first half of quarters with earnings announcements, with the S&P 500 typically rising by an average of 4% in the first half and remaining flat in the latter half.
While LPL Financial remains neutral on overall stock investments, they view the AI boom and anticipated strong corporate performance as positive factors. For investors, bonds may offer a more favorable risk-return balance compared to stocks, especially with the Federal Reserve’s upcoming interest rate hikes potentially leading to lower market rates.
In terms of asset allocation, LPL Financial favors an overweight position in bonds and advises focusing on domestic growth stocks, particularly those in the technology sector. For exposure to international equities, Japanese stocks are highlighted as an attractive option.
Investors seeking exposure to domestic growth stocks can consider ETFs like Vanguard Growth ETF, iShares Morningstar Growth ETF, and Invesco QQQ Trust. For Japanese equity exposure, options such as iShares MSCI Japan ETF and Franklin FTSE Japan ETF are recommended.
As investors navigate the evolving market conditions, staying informed about industry trends and potential opportunities can help in making informed investment decisions.
