With just less than 40% of S&P 500 companies reporting for the 4Q earnings season, results continue to come in quite strong. Estimated sales growth flipped positive for the overall index, and earnings growth is now estimated to be down only -1.6% led by the Technology and Financial sectors. The energy and industrial sectors continue to be the biggest laggards. Greater than 80% of companies are beating estimates for the 3rd quarter in a row, more than 80% of companies reporting have beaten earnings estimates. This remains the highest percentage based on data back to 1994 and suggests analysts remain overly pessimistic about the prospects for earnings.
Full Year 2021 and 2022 are seeing upward revisions. Not only are companies reporting strong earnings, but companies are providing optimistic outlooks that are resulting in overall aggregate earnings revisions higher for 2021 and 2022. After just one short month, the overall index EPS figure for 2021 has increased by more than $4, and for 2022 the number has increased by more than $3.
A comment on last week’s trading in the markets. The challenge in frenetic moments is often to regain focus on what’s most important. Away from the Reddit spectacle, the big question – as we see it – is whether the recent weakness in stocks is suggestive of just an off-sides positioning flush or the market more seriously re-rating the trajectory of the economic recovery. At this point, we’d still say the latter option is unlikely… despite a modest -4% correction for the S&P, 10-year yields are holding north of 1.00%, credit conditions remain stable, and Brent Oil hasn’t budged. Even in Europe, where virus lockdowns have been more draconian than at home, cyclicals are holding their own vs. defensive groups and German bond yields have quietly been creeping higher. Domestically, defensive sectors haven’t done much to win our attention either – aside from notable improvement from the REITs (which we’re reluctant to even call defensive in this environment), neither Staples nor Utilities have offered much of a relative advantage. It’s well known that February seasonality isn’t great (particularly in the first year of a new Administration) and momentum has fatigued over recent weeks, but we’re still reluctant to get too negative.
The mania that gripped markets last week appears to have extended to the Metals this morning, with a significant breakout and momentum surge from Silver. What we find most remarkable about these moves over the last two weeks is that all the targeted securities – e.g., GME, BBBY, BB, and now SLV – shared the same technical characteristics (recovering from long bear markets, improving trends, and recently on the 52-week high list). Silver was a good chart before any of this, quietly consolidating last year’s strength and we suspect it will be a good chart after this speculative phases passes. But the bigger lesson is likely simple here… don’t short 52-week highs.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.
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