“On 1 May I wrote ‘This Bull Market has More Room to Run’ and it does” — Paul Ebeling
The Big Q: Why?
The Big A: Key US companies earnings’ came in above expectations in Q-1, giving investors strong confirmation that profit growth will continue to support the market throughout this yr
A big piece of the strong earnings growth came from tech and growth companies, signaling greater durability in companies that underperformed more economically focused value names for the last several months.
In this Q-1 earnings season the vest majority of reports came in ahead of analysts’ estimates for EPS putting Q-1 Y 2021 on pace to have the highest beat rate on record going back to Y 1994, when the Street began tracking the data. That information as for the most part ignored as the bench mark indexes have been consolidating and rotating setting up for the next leg North in 2-H
Our work shows that the stronger-than-expected earnings will drive this market further North. The benchmark S&P 500 is trading at about 23X forward earnings, above the long-average of about 15X.
The earnings results are really not fully priced in yet because estimates for 2-H of the yr will start to pick up in response to the better-than expected environment, when the inflation chatter fades. That augurs more room for the Bull to run.
Tuesday, a recent poll published on NASDAQ’s website said the following:
By the end of Y 2021, the index will be at 4,300, a 2.5% gain from its close Monday of 4,197, according to the median forecast of 46 strategists polled by Reuters over the last 2 weeks.
That forecast is higher than 4,100 in the February Reuters poll, and strategists cited stronger-than-expected earnings so far this year as among reasons for bumping up 2021 forecasts.
Based on the poll, the DJIA will finish this year at 35,500, up about 3.2% from Monday’s close.
We see the market much higher into yrs end barring any Black Swans.
We now expect S&P 500 earnings to grow 37% in Y 2021, compared with a forecast of 23.5% growth at the beginning of the yr.
Also, the Fed will remain dovish for some time.
Notably Wells Fargo last wk raised its year-end 2021 forecast on the S&P 500 to 4,500 from 4,300. We are on the record for a raise from 4,250 to 4,700 for the S&P 500 and the DJIA from 35,250 to 40,000.
Shares of US banks, energy companies and other value names have surged since breakthroughs in COVID-19 vaccines late last yr and are favorites for Y 2021 among strategists.
Now, the stock market good far outweigh the bad.
In our scenario, this is going to continue be a risk-on environment as Wall Street is in love with Free Money.
Have a healthy day, Keep the Faith!