Fourth Quarter Earnings Season Begins Amid Market Uncertainty

The fourth quarter earnings season has commenced with promising results. However, market analysts believe that the upcoming weeks may be dominated by President Trump's return to the Oval Office and his executive orders.

"At present, earnings are taking a back seat as policy becomes the main focus," said Callie Cox, chief markets strategist at Ritholtz Wealth Management.

Trump's policies have already influenced market activity. On his first full trading day, the U.S. dollar index experienced its greatest one-day decline in a year, prompting a rally in stocks. Industries like Industrials and Materials, which benefit from a weaker dollar, performed particularly well. Tech stocks also rose amidst reports of a potential $500 billion investment in private-sector artificial intelligence infrastructure.

Investors are now scrutinizing whether Trump will adhere to his campaign promises. However, underlying corporate fundamentals remain strong.

To date, 43 S&P 500 companies have reported earnings, many of which have exceeded expectations. FactSet estimates that the S&P 500 is on track for 12.5% year-over-year earnings growth this quarter, surpassing the 11.5% forecast last week. This would represent the strongest S&P 500 earnings growth quarter in over three years.

Companies outperforming analysts' estimates have seen their stocks rise by 3.34% on the subsequent trading day, significantly above the historical average of 1.5%.

Despite positive earnings, Citi equity strategist Scott Chronert cautions that market gains may be tempered by economic, trade, and monetary policy uncertainties.

Over 90% of S&P 500 companies are expected to report earnings after Trump's inauguration, leading to "noise" in company outlooks. Chronert anticipates conservative guidance as companies factor in policy uncertainties into their forecasts.

Strategists emphasize that the impact of Trump's policies on the U.S. economy and corporate profits should be carefully considered. While current prospects remain stable, a change in policies could alter the trajectory.

"When there's a lot of noise, focus on the economy and earnings, which are currently in a stable situation," advises Cox. "It's challenging to predict their future direction amidst the policy fog."