The stock market has just avoided an “earnings apocalypse,” setting the stage for a year-end rally

• The stock market avoided an “earnings apocalypse” after third-quarter results, according to BMO.

• BMO’s Brian Belsky highlighted three factors that should help stocks climb the “wall of anxiety” through the end of the year.

• “We continue to view this as a bull market and the path of least resistance is rising stock prices,” Belsky said.

The stock market has just avoided an “earnings disaster” following Q3 results, and this should set the stage for further gains as the end of the year approaches.

That’s according to BMO’s chief investment strategist, Brian Belsky, who said in a recent note that despite the ongoing rally in stocks, There is still a lot of pessimism among investors.

“Despite the impressive monthly gains so far, there is still a fair amount of negativity and anxiety regarding the direction of the stock market,” Belsky said.

But this negativity among investors should serve as fuel for the market as stocks prepare to “climb the wall of anxiety” as the end of the year approaches.

“We continue to view this as a bull market and the path of least resistance is higher stock prices through the end of the year,” Belsky said. “A very strong start to 2023 has provided a buffer for recent weakness and strong starts have typically led to sustained gains even with bumps along the way.”

Belsky stressed that the flexibility of corporate profits is being overlooked by investors, especially since many believe that earnings estimates were too high this year.

But companies started making profits After a short-lived stagnation in profits.

by 94% Standard & Poor’s 500 After companies announced third-quarter earnings results, 83% of them beat earnings estimates by an average of 7%, which is above average. Meanwhile, third-quarter earnings per share for the S&P 500 are on track to grow 11% excluding the energy sector, according to Fundstrat.

“There has been no earnings catastrophe. For all the worry about ‘too high’ earnings estimates this year, the overall earnings surprise has been well above average over the first three quarters. The percentage of comps surpassed historic highs as well, while the Directions are thriving.” Belsky said.

The story continues

The strong earnings are setting up the stock market well for continued gains over the next few months, according to the note, especially thanks to… The seasonal monsoon winds during the last two months of the year, A noticeable improvement in the breadth of the stock market.

“The number of stocks outperforming the S&P 500 rose to 193 from 146, or nearly 10% of the index, when compared [the] Belsky noted that the second half of 2023 versus the first half of 2023, respectively.

This is an encouraging sign, as more participation in the stock market rises It should help drive a sustainable continuation of the current bull market.

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