As companies prepare to open their books to investors in the coming weeks, in the three-month rite of passage known as earnings season, market watchers are balancing relatively weak estimates for past profits with brighter forecasts for future performance.

Stock prices tend to follow expectations of future earnings rather than reacting to details of the past, and markets have risen on investors’ improved outlook for the economy. The S&P 500 index has gained more than 20 percent since October.

Companies in the index are expected to report a 7 percent slide in earnings for the three months to June, compared with the same period last year, according to FactSet. But much of that decline is concentrated in a few sectors, such as energy, which posted outsized gains last year, making comparisons with this year difficult. And corporate executives also have a habit of lowering investors’ expectations before earnings announcements so they can beat projections.

“The bottom for the earnings cycle may already be there,” said Binky Chadha, the chief U.S. equity strategist at Deutsche Bank, who correctly predicted, against the consensus, that stocks would rise this year.

Gloomier predictions at the beginning of the year did not come to pass. Despite widespread fears of a recession, the economy remained resilient. The latest inflation report, released this week, fueled optimism that the Federal Reserve can still tame rising prices without dragging the broader economy — and corporate America — into a deeper downturn.

With the strength of consumer spending underpinning economic resilience, focus will be firmly on how households are faring as savings gained through the pandemic dwindle. Even here, many large companies have already managed to raise prices significantly, softening the impact of any consumer weakness that may yet come.

This year, Pepsi said it had already raised its prices enough to mitigate rising costs for the rest of 2023. On Thursday, the company reported that in the three months to June, it raised prices another 15 percent, reflecting the continued ability of consumers to absorb higher prices, and the willingness of companies to exploit it.

“It’s encouraging that still the consumer seems to be quite robust,” said Bonnie Herzog, an analyst at Goldman Sachs.

Ramon Laguarta, Pepsi’s chief executive, told analysts Thursday morning that a strong labor market in the United States and abroad was helping consumers. Data released by the Labor Department last week showed that even as the economy cooled, unemployment remained low.

Even some of the companies hardest hit by the pandemic, such as cruise operators Royal Caribbean and Carnival Cruise Line, have begun to recover.

While analysts had predicted that Pepsi would post strong financial results, the company still beat expectations, lifting its share price 2.4 percent on Thursday. Over the past 10 years, more than 70 percent of companies have on average beaten analysts’ forecasts, according to FactSet.

Even if some companies are starting to slip, investors have already shrugged off a 2.1 percent drop in earnings for the first quarter, with the drop proving better than the more than 6 percent decline expected.

That better result helped propel the S&P 500 higher. The average analyst at the start of the year predicted the S&P would rise about 5 percent during 2023, according to a Bloomberg aggregation of forecasts. It took less than a month to get through that level.

Forecasters from the likes of Bank of America, Goldman Sachs and BMO have since raised their expectations.

John Flood, head of U.S. equities trading at Goldman Sachs, wrote in a note to clients on Wednesday that for the first time this year he questioned whether the S&P 500 could hit a record high in 2023, which remains about 5. percent away. “I’m going with yes,” he wrote.

However, only a few analysts expect the index to go higher from here, with much of the bullishness over the resumption of earnings growth already baked into the rally.

Some, including analysts at Cantor, Morgan Stanley, BNP Paribas and Barclays, continue to forecast a fall of around 10 percent or more by the end of the year.

The robust rally in the S&P 500 since it bottomed in October means companies are broadly already valued at historically high levels. While unemployment remains low, there are signs of softening in the labor market. Pepsi reported strong earnings and raised prices, but its sales volume took a hit as a result, as some consumers balked at the higher price tags.

Some analysts also pointed to the end of the student loan moratorium, which means loan repayments will resume in the fall, as another headwind for consumers.

Apart from a group of technology companies that have driven the market higher, in part because of enthusiasm for the profit potential of artificial intelligence, companies could face more resistance to higher prices, while costs – such as from higher wages – remain, Venu Krishna said. head of US equity strategy at Barclays.

“We still see continued revenue pressure,” he said.

Even some of the more optimistic strategists acknowledge that while the worst for company earnings may soon be in the rearview mirror, it will be harder for stock prices to continue rising because much of the recent optimism has already been baked into the market.

However, the outlook going into the latest round of financial results remains a far cry from the dovish predictions at the start of the year, with Mr Chadha expecting share prices to “grind higher” yet.

“There’s a long list of concerns that investors have, and whether we’re going into a recession or not is an open question,” he said. “But with the potential recession long telegraphed and expected to be mild, we think the market sell-off will be modest and short-lived.”

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