Is the logic of the bull market in US stocks still solid? Performance guidance steadily raised, earnings season expected to continue to exceed "expectations"

The US stock market is currently at a historic high, with the new earnings season approaching. The improvement in profit growth expectations of US companies indicates that the stock market rally is expected to continue. Among the S&P 500 index component companies providing guidance for the third quarter earnings, more than 22% of companies are expected to exceed analysts' expectations, the highest level in a year. In addition, the proportion of companies that have issued lower-than-expected profit guidance is also at its lowest in four years. The improvement in corporate profit prospects is contrary to the expectations of many Wall Street professionals, who previously expected the situation to worsen as the first round of Trump's tariff policies took effect. Sam Stovall, Chief Investment Strategist at CFRA, said, "People have been panicking about the tariff issue, but the 'wolf' has not yet appeared. The real question is whether this 'wolf' is delayed or has been eliminated? It appears that companies have taken on most of the tariff costs." Wall Street analysts expect that earnings of S&P 500 index component companies will grow by 6.9% in the third quarter, higher than the 6.7% at the end of May. The data indicates that the strengthening of this optimistic sentiment shows that the market is gaining confidence in these companies' ability to withstand the impact of Trump's tariffs. Among the most optimistic companies, 3M Corporation (MMM.US) raised its profit expectations and stated that it has taken measures to reduce costs related to tariffs, including production transfers and price adjustments. Expedia (EXPE.US) raised its full-year outlook based on strong consumer demand growth. Just last week, Oracle Corporation (ORCL.US) made strong predictions for its cloud infrastructure business, leading to its stock price soaring to its best performance in the market since 1992. Conservative corporate earnings guidance Investors make judgments based on this data in advance, as corporate profit expectations are often conservative, even as profits rise. CFRA data shows that in the past 65 quarters, the actual earnings of 63 quarters have exceeded the expectations at the end of the quarter. According to CFRA, the difference between actual earnings and expectations in the last quarter was 7.1 percentage points, while the average median over-performance rate in the past 65 quarters was 4.8 percentage points. There are other factors contributing to profit growth, such as the Fed's upcoming new round of interest rate cuts. With the economy still showing strong momentum, lower borrowing costs are expected to help boost the profit margins of US companies, thereby affecting their performance. Stovall said, "Despite the decline in US Treasury yields, the US Gross Domestic Product remains relatively stable, so we continue to see sustained growth in corporate profits." The impact of rate cuts usually gradually manifests, with stock prices increasing more in the second year of an interest rate reduction cycle than in the first. Assuming there is no economic recession, according to data from JPMorgan's US stock research department, the S&P 500 index is expected to rise by nearly 27% in the second year of an interest rate cut, compared to a 14% increase in the first year. In a report to clients on Thursday, a team led by JPMorgan analyst Ken Goldman wrote that lower interest rates have historically had a significant supportive effect on profits, as they promote consumer spending, capital investment, mergers and acquisitions, and activities such as stock buybacks. Historically, in the second year of an interest rate cut cycle, 10 out of 11 sectors of the S&P 500 index have seen increases, with the technology and financial sectors performing particularly well, according to CFRA data. This time, capital equipment, transportation, and building materials companies are seen as the biggest beneficiaries, and according to JPMorgan, there is further room for growth in the automotive, Clean Energy Fuels Corp., utilities, real estate, and technology sectors. Analysts wrote, "Most industries are expected to receive broad support for stock valuations, especially those with high debt leverage, sensitivity to interest rates, or capital-intensive business models."