The best-case scenario for stocks involves slowing GDP and accelerating earnings growth, according to analysts at Bank of America Securities.
In a research note Tuesday, the investment bank said today’s equity cycle is different from the macro cycle.
“While GDP and the labor market appear to be slowing, earnings are growing (LTM EPS +3% YoY),” BofA noted. “What’s more, all three of BofA’s quantitative models suggest equities will strengthen.”
With first-quarter profit up 97%, earnings per share beat consensus by 3%, up 7% year over year. BofA highlights that while the Magnificent Seven led the way, the remaining 493 still performed, with all 11 sectors, excluding healthcare, exceeding expectations.
“Historically, slowing GDP + accelerating EPS growth has been the best macro environment for stocks,” they add. “In our view, the divergence is mainly due to improving manufacturing versus a slowdown in services. As production recovery progresses, improving fundamentals should continue to support the market.”