It’s been more than a year since the Technology sector has made any relative progress vs. the S&P, it’s the longest stretch of indifference since roughly 2013. Granted the bar has been high given the broader market’s run, but nevertheless, it continues to mark a noted shift in tone, made all the more significant given a static Fed and some great earnings last week. Last May over 70% of Technology stocks were in a relative uptrend vs. the S&P (easy to find a leader), while today’s just 40% (more difficult to find a leader). Semis have been dominant for much of the time, but even here performance has diverged over recent weeks. You can’t make it more than a few minutes without hearing about the “chip shortage,” but the stocks have started to interpret it differently than the consensus. The rally in IGV (Software) since early March has also been tepid, barely reclaiming even a third of its relative decline, and the IPO Index (Aspirational Tech) hasn’t bounced.
The Copper vs. Gold ratio hit fresh cycle highs last week, offering support for yields after an otherwise rangebound last eight weeks for U.S. 10’s. Curiously, German yields haven’t flinched and are on the cusp of multi-year highs, and French 10’s even went positive last week. The European Banks continue to respond, and we’d imagine there’s significant reflexivity for the group as the suffocation that is negative yields abates. (What Euro Bank analyst really modeled positive European sovereign yields after last year… we’re guessing not too many).
Every Sector Saw An Improvement In 1Q Earnings Growth Last Week
With about 40% of S&P 500 companies reporting earnings last week, the overall S&P 500 earnings growth rate jumped to 46.3% from 33.9% for the first quarter. All eleven sectors saw earnings growth strengthen, with energy growth flipping positive. From a top-line perspective and all but the Real Estate sector saw improvements. We are now getting more inquiries about whether this is as good as it gets.
2022 Earnings Growth Rate Slides Again
The absolute blowout first quarter that we have seen with just 60% of companies reported lifted 2021 consensus 2021 EPS estimate to nearly $185. Although the 2022 EPS estimate is rising, the pace continues to lag, and as a result, 2022’s growth rate continues to slide now. As of April 1st, earnings were expected to grow 15.2% in 2022, last week, that figure had fallen to 13.7%, and now it stands at 12.5%.
Still Not Seeing An Increase Discussion of Taxes
With Biden’s Tax proposals still in the early stages of discussion in Washington, we continue to see no evidence of companies or investors discussing “taxes” based on data scraping analysis of company transcripts. As we discussed a couple of weeks back, this is different than what occurred following Trump being elected in early 2017.
Earnings Surprise Factor 23%
The earnings surprise factor continues to remain at its elevated levels that have been seen in the last year. This is well beyond the long-term average of just 3.5% and even above the surprise factors that were seen coming out of the financial crisis. For this reason, it is clearly a data point that begs the question is this as good as it gets.
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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