As the U.S. stock market progresses through the third-quarter earnings season, more than one-third of S&P 500 companies have reported their results. Savita Subramanian, a Bank of America strategist, noted that the term "bottom" is frequently appearing in recent earnings calls, suggesting that the U.S. stock market may be bottoming out and poised for a rebound. After a detailed analysis of the earnings call transcripts, Bank of America found that mentions of the word "bottom" increased by 56% year over year, indicating a positive shift in market sentiment.
Bank of America's research shows that the frequency of the term "demand weakness" has fallen to a two-year low, particularly for cyclical sectors like manufacturing, which could be an early indicator of economic recovery. Historically, an increase in mentions of the word "bottom" in earnings calls often marks a turning point in the earnings cycle. For example, during the market lows of 2009 and 2020, mentions of the term preceded a more than 75% year-over-year increase in quarterly earnings per share for the S&P 500. Subramanian stated that this frequent mention of "bottom" typically signals market stabilization and the onset of a new growth phase.
Furthermore, mentions of the word "election" have risen by 62% compared to the same period in 2020, reflecting market interest in election outcomes and their economic impacts. Analysts believe that this cautious wait-and-see attitude is primarily due to the potential uncertainty of the election. However, Subramanian pointed out that historical data suggest investment activities typically accelerate post-election. She predicts that the end of the election could serve as a catalyst for releasing corporate capital expenditures, especially in a low-interest-rate environment, likely boosting manufacturing and other sectors' investment recovery.
Considering multiple signals, Bank of America forecasts that U.S. manufacturing activity will rebound in the first half of next year, with the Federal Reserve likely to maintain accommodative policies. Combined with the gradual dissipation of post-election policy uncertainty, these factors are conducive to robust growth in the U.S. stock market by 2025. These positive expectations provide a reference for investors, and Bank of America believes that the changes in keyword mentions during this earnings season reveal a powerful signal of future earnings potential for U.S. stocks in the coming years.
