The Secret Method Behind Improved Earnings in U.S. Stocks
Recently, U.S. corporations have delivered impressive financial results. Over 90% of S&P 500 companies have reported their second-quarter earnings, with EPS growing by 10.9% quarter-over-quarter marking the best performance since Q4 2021. However, a closer look reveals that this earnings growth is primarily driven not by revenue increases but by cost control.
Cost Reduction: The Secret Method for Improved Earnings in U.S. Stocks
Since Q4 of last year, U.S. publicly traded companies have been focusing on internal efficiencies, cutting down on everyday expenses such as rent and wages to cope with economic pressure and inflation. While revenue growth hasn't been as strong, 79% of companies have exceeded earnings expectations.
Moreover, performance varies across industries. Utilities, information technology, financials, healthcare, and consumer discretionary sectors have achieved double-digit earnings growth. In contrast, consumer companies haven't been as fortunate; major brands like Starbucks, Procter & Gamble have reported less than stellar results, indicating that consumers' wallets are tightening.
Cost Control: A Double-Edged Sword
In the short term, cost control can indeed enhance profitability, but in the long run, continuously squeezing costs will limit the room for earnings growth. Overly aggressive cost-cutting could also harm a company's long-term competitiveness. For instance, layoffs and wage reductions may lead to talent loss, and insufficient investment in R&D could weaken innovation capabilities.
To achieve sustainable earnings growth, technological innovation is crucial.
Looking ahead, there are still many uncertainties around the growth of U.S. corporate earnings, such as the direction of Federal Reserve policy, the state of U.S. economic growth, and geopolitical risks. If the U.S. economy can achieve a "soft landing," it would be beneficial for earnings growth in U.S. stocks.
In summary, I recommend maintaining a cautiously optimistic stance and selecting individual stocks carefully. Focus on leading tech companies with core technologies and strong innovation capabilities, as well as cyclical industry leaders that benefit from economic recovery and stable earnings growth.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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