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Stocks are approaching a “once-in-a-generation” buying opportunity, analysts from RBA said.
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Corporate profit indicators are hitting a trough in the US and global stock markets.
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That means earnings are about to take off in nearly every area of the market, the firm said.
Investors could soon face a once-in-a-lifetime investment opportunity in stocks, thanks to a coming pop in corporate profits across sectors of the market, according to the investment firm Richard Bernstein Advisors.
“Our view has been that the economy isn’t actually landing,” RBA said in a note Tuesday, pointing to fears that the economy could be headed for a hard landing, or a coming recession. “Furthering the airplane metaphor, we see profits taking off …Corporate profits are accelerating and the overall economy looks set to remain quite healthy.”
Though global stocks tipped into a profits recession this year, earnings appear to have bottomed out, according to RBA. The investment firm predicts that profits will gain momentum into the end of 2023 and 2024.
In the US, leading indicators for corporate profits have also reached their lowest point, indicating that earnings will likely increase in the coming year. RBA expects S&P 500 earnings growth to rise by 10%-15% through 2024.
These positive trends are supported by a strong economy. Before adjusting for inflation, GDP grew by 8.5% in the past quarter, the highest pace of nominal growth seen since 2006.
The growth in the economy is already impacting corporate earnings. An analysis by RBA shows that around 130 US companies have reported at least 25% earnings growth as of October.
RBA predicts that profits could rise in almost every area of the stock market, except for the “Magnificent Seven” tech stocks that have already experienced significant growth due to Wall Street’s enthusiasm for artificial intelligence. According to RBA, these tech giants are now overvalued, making other investments more appealing.
“Such narrow leadership seems totally unjustified and their extreme valuations suggest a once-in-a-generation investment opportunity in virtually anything other than those 7 stocks,” the firm added.
Despite a decline in the S&P 500 in October, other market forecasters remain bullish on stocks until the end of the year. The recent drop has been attributed to surging bond yields and fears of higher interest rates, but signs indicate that equities could quickly rebound from the correction.
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