After pushing US stocks to record highs over the past five months, investors are set to focus on the message from companies as they start reporting first-quarter results.

The country’s largest companies are expected to report lacklustre quarterly results, so Wall Street has rallied sharply since January on the basis that a stronger economy later this year will accelerate profit expansion.

But a disappointing jobs report last week and lower forecasts from bellwethers of economic activity such Delta Air Lines and FedEx are raising the stakes.

“Stock markets have had a nice run, but expectations have been for consistently lower earnings,” said Paul Hickey, co-founder of Bespoke Investment Group. “Unless we see some improvement in companies’ forward guidance, earnings by themselves are not likely to become a catalyst for further gains.”

Aluminium producer Alcoa kicked off the first-quarter earnings season in the US after the market closed on Monday, following a multi-month rally marked by the S&P 500 eclipsing its all-time high last week.

Analysts forecast earnings for America’s 500 largest public companies will grow 0.7 per cent for the first quarter, compared with the same period a year ago. That is a sharp drop from the 7.7 per cent expansion posted during the final quarter of last year, according to S&P Capital IQ. Only six out of the 10 major sector groups in the S&P 500 are expected to show earnings’ growth.

For this quarter, telecoms companies, consumer discretionary and consumer staples are expected to post the strongest gains, according to S&P Capital IQ. In contrast, sharp declines are seen in energy and information technology.

The Dow Jones Transportation Index, often considered a barometer for the economy and the trend of the broader market, has dropped 3.4 per cent since the start of the month.

Fred Smith, chief executive of FedEx, said last month that the package delivery company had experienced “very challenging” conditions in the quarter to February 28 as customers continued to select cheaper and slower services.

But some investors see silver linings, with a few bright spots including a rebound in car sales, improvement in the housing market, share buybacks and a rebound in M&A activity.

“The biggest beats should be in industrials and financials, especially those with capital goods and capital markets exposure,” said David Bianco, US strategist at Deutsche Bank. “Capital markets activity has been picking up, as has capital expenditure.”

Analysts also say growth in certain overseas markets, such as Latin America, the low rate environment and a continued improvement in the overall US economy should also contribute to companies’ bottom line.

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