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00:00 What do the results of the American companies say about the US economy and what led to the rise of the S&P 500 at the beginning of this year?
00:13 In the past few years, specifically in 2022 and 2023, the focus was on the earnings call, which means talking to investors about the main words, inflation and fears of economic collapse.
00:31 In the first quarter numbers and in the investors' meetings, we noticed that we had a sharp decline in the mention of words such as inflation and economic collapse.
00:41 Notice that in 2022, companies were essentially focusing and repeating words such as the inflation environment, the rise of goods, and at the same time, fearing that we would have economic collapse.
00:56 We noticed that in the first quarter results, this decline was significant and the focus was on words such as AI, machine learning.
01:06 These words were more controlled by the statements of the executives and the earnings call in the first quarter results.
01:17 This is a very positive sign that at least the executives in the companies are not afraid of the numbers of inflation and are not afraid of having economic collapse.
01:28 What were the details of the results when we look at the results we heard from technology companies compared to other companies from other sectors?
01:37 From the beginning of this year, as it was in the previous year, tech companies were the ones who led the rise in the S&P 500 index. Was that the case for profits? Yes, to some extent.
01:49 If we look at the earnings per share growth, which means the growth in the profitability of each share, and we compare it between 2024 and 2025,
02:00 the seven big companies are still largely controlling the growth of the companies' profits in 2024. These are the expectations.
02:09 But notice that this will be reversed in 2025. If we look at the S&P 500 index, the Magnificent Seven, or the seven big companies,
02:19 we notice that we started to see an increase in the profitability of the expected companies for 2025, except for the technology sector.
02:28 This is what we usually talk about when we see an increase in the shares in the leadership of tech companies or an increase in the shares in the leadership of all sectors,
02:37 which is what is known as seeing a greater breadth in the market.
02:40 Therefore, it is clear that by returning to the medium-sized companies, the S&P 500 index in general, and even other companies,
02:48 without the Magnificent Seven, in 2025, we will start to see a greater share of other medium-sized companies in the leadership of earnings growth.
03:00 The trend towards spending is a fundamental issue in the first quarter.
03:05 The analyst or investor always monitors the size of free cash flows, the amount of liquidity available to companies.
03:13 If we look at the beginning of this year, in the first quarter, companies announced the process of rebuying shares for more than $350 billion.
03:22 There are expectations that by the end of the year, we will be talking about $900 billion in shares buyback operations, in addition to distributions.
03:30 Because today, in the first quarter, we heard from companies that they started to distribute, and they usually do not do that.
03:36 Companies like Meta and Alphabet, five of the seven companies in the Magnificent Seven are dividend payers, meaning they pay the distributions.
03:45 This gives us an idea that they have cash.
03:48 This is reflected even in the trend towards investment spending, the CapEx.
03:52 We noticed that during the past period, we noticed that the CapEx was re-released for S&P 500 companies.
04:01 But the CEOs, the executive presidents, started to raise their expectations that they will do a bigger CapEx during this year.
04:08 Where? In artificial intelligence.
04:10 That is why we heard the words like artificial intelligence.
04:15 Now the most important question is what drives the increases in S&P 500?
04:20 We are talking about the components or the main elements between the profits of the companies, the multiple expansion, the distributions, and the full return that we saw on S&P 500.
04:33 Notice that in 2023, the largest part of the return achieved from S&P 500 was the multiple expansion.
04:41 It was not the main reason for the increase in profits.
04:45 But in terms of the expectations for 2024, we are talking about a kind of balance between multiple expansion and the growth of profits.
04:54 Notice that if we take the whole period from 2020 to 2024, most of the increase and the return achieved by S&P 500 was supported by the profits of the companies.
05:06 Today, when we look at the investors' expectations in S&P 500 and the American companies, a large part of the expectations are that the American companies are expected to grow their profits during this year by 10%.
05:22 And this is what drives the expectations, even though the expectations of the federal government and the low interest rates have been reduced significantly.