Advisors can bask in the glow of ‘remarkable’ and ‘extraordinary’ corporate earnings: Goldman Sachs

While advisors and their clients have had to contend with waves of market volatility in recent months, they are also benefiting from something of a golden age for U.S. corporate earnings, according to Goldman Sachs.

“From a resiliency perspective, just look at earnings,” said Lindsay Rosner, head of multi-sector investing at Goldman Sachs, during a panel discussion at the company’s RIA Professional Investor Forum in New York Tuesday. Rosner added that the recent run of earnings have been “absolutely remarkable.”

“Our corporations are in a great position and that feeds the economy,” she added.

These sentiments were echoed by Ben Snider, Goldman Sachs’ chief US equity strategist, who cited the “broad based strength” he has seen this earnings season.  “It's incredible,” he said. “S&P 500 earnings, if you strip out some things like the revaluation of private equity stakes, they're tracking up 17% year over year for the first quarter.”

“That's going to be the best quarter in 15 years outside of the COVID reopening and the boost from tax cuts in 2017,” he added.

Snider explained that there have been times over the last couple of years where S&P 500 earnings looked great, but its performance was really driven by just a few companies. “That is not the case this quarter - this quarter, even the median S&P 500 stock, stock number 250 is growing 14% year over year,” he said. “So the picture has been very good.”

The S&P 500, which has climbed more than 26% in the last 12 months, has registered a series of records recently. Indeed, the index closed at a new all-time high on Monday.

The tech sector and AI have played a big part in the S&P 500’s performance. Tech’s big hitters have enjoyed a stellar earnings season, boosted by revenue gains at Microsoft, Alphabet, Amazon, and Meta, and standout fiscal second-quarter results at Apple.

“Within the market, the biggest story is AI CapEx,” said Snider. “Right now, analysts are pointing to $750 billion of hyperscaler capex this year … that's $100 billion more than the estimate just a couple [of] weeks ago,” he said.

“So it's just an extraordinary amount of spending - and it's an amount of spending that continues to get revised higher and higher,” he added. “One company's capex is another company's revenues and so that has driven this huge increase in not just the first quarter earnings but the expectations going forward – that's a major reason why the semiconductors have rallied.”

Set against this backdrop, shares of AI darling Nvidia have climbed more than 17% this year, while Broadcom’s stock is up more than 19% and chip giant Intel has gained an eye-watering 221%.

But it’s not all roses, according to Snider, who points to “pretty poor” consumer sentiment. Earlier this month the University of Michigan’s Consumer Sentiment Index registered a record low of 48.2 and fast-food giant McDonald’s recently highlighted the challenges faced by lower-income consumers. Elsewhere, Planet Fitness cut its full-year revenue guidance.

However, the importance of tech to the broader S&P 500 should not be underestimated, according to Snider. “If I take the earnings share in the S&P 500 of energy and the consumer, the two parts of the market that are most exposed to what's going on right now, those together are about 20% of S&P 500 earnings – tech is 40%,” he said. So the “huge” technology sector tailwinds are easily outweighing any other headwinds that Goldman Sachs is seeing, he added.