U.S. Earnings Season Halfway Through: Bank of America Highlights Four Key Points Not to Be Overlooked

As the Q4 earnings season approaches its end, Wall Street investors have drawn some key conclusions from these earnings reports.

Bank of America stated that, despite ongoing background noise related to the artificial intelligence race affecting investor confidence during this earnings season, the overall performance of U.S. companies’ earnings has met expectations.

So far, approximately 75% of companies in the S&P 500 have reported earnings. Bank of America analysts pointed out four major highlights from the Q4 earnings season.

1. Q4 profits exceeded historical averages

Overall, U.S. companies’ earnings growth this earnings season has been stronger than expected and above historical averages, but has shown a quarter-over-quarter decline.

Among the earnings reports released so far, nearly 70% of companies have exceeded market expectations per share, compared to a historical average of 60%. In the previous quarter, this compliance rate reached 75%, the highest since 2021.

Companies’ revenue performance has also been very strong. Bank of America noted that, excluding the financial and energy sectors, U.S. corporate revenue is expected to achieve the largest year-over-year increase since 2022.

2. Corporate optimism reaches record highs

Bank of America’s forecasting team assessed company executives’ attitudes by analyzing conference call content. They found that, during this earnings season, U.S. corporate optimism has reached a record high.

“Corporate optimism in Q4 has hit an all-time high, slightly above levels before the ‘Liberation Day’,” Bank of America also pointed out. “Mentions of ‘weak demand’ have increased, but remain well below levels seen in 2023-2024.”

They noted that executives in the U.S. technology and healthcare sectors are the most optimistic, while real estate and essential consumer goods sectors are the most pessimistic.

3. The AI race shows no signs of slowing down

During this earnings season, artificial intelligence remains a focal point on Wall Street. Especially amid concerns about AI’s disruptive impact, market volatility and worries about returns on massive capital expenditures have increased.

So far, U.S. large-scale companies have provided AI spending guidance that exceeds Wall Street expectations by 35%. Amazon plans to invest $200 billion this year, while Alphabet and Meta are expected to invest up to $185 billion and $135 billion, respectively.

Bank of America warned that these tech giants might end up spending even more—by 2025, U.S. corporate capital expenditures could surpass initial expectations by more than 30%.

Despite Amazon being punished by investors after announcing its spending plans—its stock price plummeted post-earnings—other major tech companies’ stock performances have remained relatively strong. For example, Meta’s capital expenditure outlook was offset by its robust advertising business, demonstrating that if investors are satisfied with other aspects of performance, they can accept high AI spending.

4. Layoffs raise concerns, but employment data is not entirely pessimistic

In January this year, U.S. companies’ layoffs reached their highest level since 2009. Despite worrying reports about layoffs at well-known companies like Amazon, Bank of America emphasized that some “less pessimistic” labor market data still exist.

Strategists said that job openings and layoffs in the Job Openings and Labor Turnover Survey (JOLTS) are relatively low, even though hiring has decreased—indicating that U.S. companies are entering a phase of “reduced hiring and reduced layoffs.”

They also pointed out that mentions of “layoffs” in earnings conference calls have increased, but they believe there is little evidence that AI is significantly weakening labor demand.

(Source: Cailian Press)