By Sam Boughedda
UBS analysts said in a research note Thursday that earnings season may not be a negative catalyst for the market, although stocks still have to contend with "elevated valuations, a Fed that will not likely cut rates any time soon, tighter credit conditions, and cautious signals from the yield curve."
The firm's June and December targets for the S&P 500 remain at 3,900 and 3,800.
"The turmoil in the banks has raised concerns that access to credit will become more challenging and lead to a slowdown in economic growth," UBS stated. "While we agree that access to bank credit will likely become more difficult for certain segments of the economy, we think these headwinds will take time to show up in corporate fundamentals. In fact, we think 1Q23 numbers could be surprisingly resilient."
The firm pointed to consumer spending remaining well-supported by a jobs market that is cooling but still growing at a healthy clip as one factor in their thesis, adding that households are still sitting on about $1 trillion of "excess" savings that were accumulated during the pandemic.
They also noted that corporate profits will benefit from continued improvements in supply chains, a sharper focus on cost containment, and the weaker dollar.
"The 'bar' for earnings season seems low. The 1Q23 bottom-up estimate for the S&P 500 has fallen by 6.5% over the last three months, despite the fact that economists have revised up 1Q US GDP growth forecasts from near 0% two months ago to around 1.3% now," UBS continued. "Finally, S&P 500 profit margin expectations actually look low. For 1Q23, the bottom-up consensus estimates suggest a profit margin that is lower than pre-pandemic levels."