Our answer is an emphatic €˜yes.’ And our thinking comes back to the reason why stocks rebounded in the first place.
Of course, resurgent fears of an incoming recession led stocks to crash in late July. But last week, they rebounded with vigor – because earnings helped to show that those fears are way overblown.
Strong Earnings Precede Strong Stocks
We are now at the tail-end of the second-quarter earnings season. So far, about 90% of the companies in the S&P 500 have reported quarterly numbers.
And collectively, those numbers have been fantastic.
The average sales growth rate has been about 5%. The average profit growth rate? Over 9%. Both figures are the market’s best growth rates since the COVID-era stock boom of late 2020 into 2021.
That’s a big deal because after all, earnings matter the most to stocks.
Sure, a lot of things drive stocks – sentiment, politics, leverage. But when earnings go up, stocks go up. When they go down, stocks do, too.
Right now, earnings are going up – by a lot. And they’ll likely keep rising for the foreseeable future, too.
In fact, Wall Street sees corporate earnings rising about 6% next quarter and 11% the quarter after. Throughout the first half of 2025, they are expected to rise more than 13% in each quarter.
In other words, earnings should explode higher over the next 12 months. If they do – and we think they will – then stocks will explode higher, too.
The Final Word
Where will earnings growth be the strongest?
Right now, earnings are growing fastest in the tech, consumer discretionary, and healthcare sectors. And going forward, we expect tech and consumer discretionary stocks to flex the strongest profit growth.
Continued investment into building out AI infrastructure and deploying new applications and services should benefit tech stocks. Meanwhile, consumer discretionary stocks should benefit from rate cuts reducing the cost of borrowing for consumers and recharging discretionary spending trends, especially for big-ticket purchases.
As for tech, AI server provider Super Micro (SMCI) is expected to grow earnings by 55% next year. That’s superb growth. Though data center storage provider Seagate Technologies (STX) is expected to do even better, growing earnings by 415% this year.
And in the consumer world, up-and-coming clothing brand ON Holding (ONON) is predicted to grow earnings by more than 110% this year. At the same time, teen retailer Abercrombie & Fitch (ANF) is looking at a 55% expected earnings growth rate this year.
That’s why we think the best investment strategy over the next 12 months is to align yourself with superstar earnings growers in the tech and consumer sectors.
Discover the top tech and consumer stocks we just recommended.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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