Profit Surge Defies Market Volatility as Earnings Optimism Grows

As the US stock market faces a prolonged period of volatility, one pillar of the three-year bull market remains strong: corporate profits. According to the latest data, profit guidance momentum, a measure of the share of S&P 500 members that lifted their earnings outlooks compared to those that maintained or lowered views, has climbed to the highest level since 2021.

Executives are expressing optimism for future earnings despite a bevy of uncertainties, including the AI euphoria facing its first prolonged test, a shaky labor market, and the persistent threat of inflation from tariffs. This optimism will be put to the test next week as some of the world's biggest retailers, such as Walmart and Target, report their latest earnings figures. Investors will be closely watching to see how American consumers are faring in President Trump's tariff regime, as consumer spending accounts for roughly two-thirds of the country's GDP.

While there are reasons for concern, such as the recent tumble in consumer sentiment, the resilience of consumer spending has helped power the S&P 500 to record after record over the past few years. As the market continues to navigate these challenges, the strength of corporate profits could provide a buy-the-dip opportunity for investors.