U.S. stocks’ lofty valuations in spotlight as earnings season nears

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Earnings,Growth,Economy

The bar may be rising for equities to keep advancing at their current pace

The U.S. stock market is the most expensive it has been in around two years. Its valuation could be put to the test as companies report earnings in coming weeks.

Investors will also listen for companies’ views on the economy and inflation, to gauge whether the so-called Goldilocks environment of resilient growth and cooling consumer prices can continue. Delta Air Lines, BlackRock, and JPMorgan Chase & Co are among the companies scheduled to release their first quarter results next week. Investors will also be watching for March U.S. consumer price data, expected on April 10.

Chipmaker Nvidia, for instance, is up 78% in 2024, while Tesla shares have fallen over 30% due to concerns over its margins and demand. The electric vehicle maker has canceled the long-promised inexpensive car that investors have been counting on to drive its growth into a mass-market automaker, Reuters reported on Friday.

“If the U.S. economy starts to bounce from here you want exposure to industries with real economy end-markets,” said Justin Menne, head of US equities for Harbor Capital Advisors, who is overweight shares of energy companies. Yet weaker earnings could indicate cracks in the economy’s strength. Some investors believe that could boost the case for the Fed to ease monetary policy.

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