The worst period is over? Bank of America: Corporate profits will see significant growth next year!

Bank of America stated that executives hinted during the third-quarter earnings call that corporate profits will see significant growth in 2025. The bank's strategist Savita Subramanian mentioned in a report on Monday that as more than one-third of the S&P 500 companies reported their earnings, the frequency of the term "bottom" mentioned during earnings calls has increased significantly. Subramanian stated, "Due to weak commodity/manufacturing sectors, companies have experienced a weak demand environment for nearly two years. However, we see signs that the worst may be behind us." Bank of America analyzed the transcripts of third-quarter earnings calls and found that the mention of the term "bottom" increased by 56% year-over-year. Additionally, the frequency of "weak demand" mentioned has dropped to its lowest level in two years, which is a positive sign for cyclical companies in the manufacturing economy. Subramanian noted, "Historically, a surge in mentions of 'bottom' often marks a turning point for earnings per share." The report indicated that after significant surges in the mention of "bottom" during earnings calls in 2009 and 2020, the S&P 500's quarterly earnings per share grew by more than 75% year-over-year. These signals suggest that Subramanian believes manufacturing activity will rebound in the first half of next year, the Federal Reserve may continue to cut interest rates, and the uncertainty surrounding the presidential election will also pass. Subramanian mentioned that the frequency of the term "election" mentioned during earnings calls has increased by 62% compared to the 2020 election cycle, indicating that "given the uncertainty, some companies are 'waiting and seeing.'" "Interestingly, history shows that investment activity typically accelerates after elections," Subramanian said. "We believe the election could be a clearing event for companies to release capital expenditures, especially in a low-interest-rate environment." Additionally, the options market pricing for this week's tech giants' earnings day is largely consistent with past volatility, with limited demand from investors to hedge against sell-offs. Among the five major tech companies that reported earnings, only Meta showed a significant difference between implied volatility and past volatility. Meta has seen two instances of rising over 20% on earnings announcement days in the past eight reports, as well as a drop of 25%, so even an implied volatility of 7% cannot compare. Celine Zhao, head of U.S. equity research at Optiver, stated, "We see that the range of implied volatility is roughly consistent with the historical average for tech giants. However, we have not seen a significant increase in skew for these companies, indicating limited demand for hedging against downside risk. This may be due to reduced concerns regarding market concentration, capital expenditures, or valuations compared to the past two quarters."