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For the Stock Market, Earnings Are Everything—and More Than Enough

Forget the Fed. Look past the data. There’s just one thing that mattered to the market this past week—earnings—and they were darn good. Expect them to keep pushing stocks higher.

The S&P 500 is now up 28% from its 52-week low reached on Oct. 12, and it hit a new 52-week high on Friday. That means it’s bull market time.

That might seem odd, particularly to the bears. Earnings, after all, are still so-so for S&P 500 companies, certainly not good enough to explain its big gains. With about half of the companies reporting, earnings are up about 3% from the previous year on average, lower than the 9% average growth reported in the second quarter of 2022.

Yet things look just fine, with about 80% of the companies reporting better-than-expected earnings. While the majority typically beat earnings, that’s a better rate than last quarter, when just under 80% did, and one year ago, when just under 75% did.

“Earnings right now are not collapsing,” says BFR Research founder Brian Rauscher, adding that concerns he had about slowing earnings growth have been “flushed out.”

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There’s certainly a chance that earnings don’t stay this good and end up looking more like expectations coming into reporting season, when strategists were predicting profits to decline by 4%. Retailers have yet to report. If second-quarter earnings end up lower, it will be the second consecutive quarter of declines, marking an “earnings recession.” But that makes sense, given the level of differentiation among companies even in the same industry.

“It’s becoming more idiosyncratic because you’re not getting a huge tailwind from either monetary or fiscal stimulus,” adds Rauscher. “You are getting two names in the same space, one OK, one not so OK.”

Look at

General Electric

(ticker: GE) and


(RTX). Both make aircraft engines, but GE stock rose 6.3% after reporting earnings on Tuesday, while RTX stock fell 10% on the same day. The difference? RTX ran into quality issues with one of its aircraft engines.

Taiwan Semiconductor Manufacturing

(TSM) and


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(INTC) also went in different directions, with shares of the former falling 3.3% after reporting numbers on July 20, and the latter rising 5.7% on Friday. Intel’s turnaround efforts, it seems, trumped cyclical concerns about the chip industry.

It all points to a market that’s far more complex now than is acknowledged. “I’ve stopped using the word ‘market,’ ” says Rauscher, noting that the equal-weight S&P 500 index is up only 9% year to date, trailing the standard S&P 500’s 20% gain.

Rauscher is looking for pockets of strength. He still likes Big Tech—earnings from



Meta Platforms

(META), Tesla (TSLA), and


(GOOGL) this past week were all strong, though not strong enough to lift all the stocks.

That bodes well for quarterly reports from


(AZMN) and


(AAPL), which are due on Aug. 3. Earnings from consumer-discretionary companies are growing fastest from a year ago. That, along with better-than-expected consumer confidence, bodes well for the sector in the second half of 2023.

It’s time to stop worrying about earnings. They’re just fine, and more than enough to keep stocks chugging higher.

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Write to Al Root at allen.root@dowjones.com

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