Traders Like Volatility, Investors Like Strong Earnings

Traders Like Volatility, Investors Like Strong Earnings

Traders Like Volatility, Investors Like Strong Earnings


Stock investors are hoping a strong earnings season to restore the optimism that characterized equity markets last year.

Traders are happy given the surge in volatility this year

Analysts predict strong results results ahead with Q-1 S&P 500 profit growth on track to be the highest in 7 years, according to Thomson Reuters data.

That follows a blockbuster Q-4 fram, and recent corporate tax cuts that boosted forecasts for all of Y 2018.

A robust earnings period would bring back the focus on fundamentals and possibly put a floor under prices, supporting views that the 9-year-old Bull market will continue.

With this year’s consolidation and rising profit forecasts, stocks also are near the cheapest on a price-to-earnings basis that they have been since late Y 2016.

The S&P 500 is trading at about 16.5X forward earnings, well below 18.9X it was at in mid-December, according to the data.


This week brings the monthly US jobs report.

Last month the job report briefly drove up bond yields and touched off worries that the Fed may need to speed up interest rate hikes.

The S&P 500 is now about 8% below its all time high.

During this consolidation phase the S&P has jumped or fallen 1% on 23 trading days, 3X the number of 1% moves it made in Y 2017. In Y 2016, there were 48 of those days.

Last year the Cboe Volatility Index (VIX) logged a record low daily average reading of 11. The VIX hit a 2.5 year high above 50 in early February.

Expectations for US earnings this year have jumped since December, when US lawmakers approved President Trump’s changes to the tax law, including slashing the corporate tax rate to 21% from 35%.

Growth in other major economies has lifted profit forecasts for the large stocks that generate a lot of sales overseas.

We now expect Q-1 earnings for S&P 500 companies to rise 18.5% from a year ago.

The Q-1 S&P profit forecast is + 6.3% since 1 January, while the forecast for all of 2018 is up 7.7% since then

Shayne and I see some room on the Northside here, and for all of the rest of Y 2018

Notably, many US companies have announced plans for increased buybacks and dividends, or bringing cash back from overseas, and other ways to use their tax savings.

We are expecting more news on that during this reporting period, which is set to start with reports on 13 April.

Have a terrific week

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