The earnings per share (EPS) for all S&P 500 companies combined increased to $174.19 last week. The forward EPS has grown 9.54% so far this year.
95.8% of S&P 500 companies have now reported Q4 results, 80% of those companies have beaten expectations and earnings have come in a combined 16.5% above estimates. (I/B/E/S data from Refinitiv)
The S&P 500 declined -2.45% for the week.
The increase in EPS along with the decline in the S&P 500 pushes the price to earnings (PE) ratio down to 21.9
The big news was the move in rates. The 10-year treasury bond rate blew threw resistance levels with ease this week, settling back above pre-COVID range.
Economic data review
“While the pace of increase in the U.S. LEI has slowed since mid-2020, January’s gains were broad-based and suggest economic growth should improve gradually over the first half of 2021,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
“As the vaccination campaign against COVID-19 accelerates, labor markets and overall growth are likely to continue improving through the rest of this year as well. The Conference Board now expects the U.S. economy to expand by 4.4 percent in 2021, after a 3.5 percent contraction in 2020.”
Should the economy actually expand 4.4% in 2021, that would be the highest annual growth rate since 1999 (+4.8%).
The present situation index—based on consumers assessment of current business and labor market conditions—increased 7.6% for the month, while the expectations index—based on consumers short term outlook for income, business, and labor market conditions—showed a modest decline of 0.44%.
“After three months of consecutive declines in the Present Situation Index, consumers’ assessment of current conditions improved in February,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “This course reversal suggests economic growth has not slowed further. While the Expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months. Notably, vacation intentions—particularly, plans to travel outside the U.S. and via air—saw an uptick this month, and are poised to improve further as vaccination efforts expand.”
It took about 10 years for confidence to return after the 2008 financial crisis, so these shocks to the system can take time to recover from.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
Q1 2021 GDP estimates continue to be revised upwards and range from about +4% to as high as +9.5%.
Notable earnings reports
Payment services company Square (NYSE:SQ) (SQ) reported an adjusted EPS of $0.32 (y/y growth rate of 40% and beating estimates) on revenue growth of 141%.
Subtract bitcoin revenues and the revenue growth rate goes from +141% to +23.5%. The company also announced an additional purchase of bitcoin, which brings its total investment to about 5% of the companies cash and cash equivalents.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
Total gross payment volumes grew 11.8% year over year, while Cash App monthly active customers grew 50% year over year. Cash app now has 36 million monthly active customers.
Nvidia (NASDAQ:NVDA) handily beat street expectations on earnings (+51% growth), revenue (+61%) growth, and forward guidance.
To break it down by segment: Data center revenues grew +97% on a quarterly basis, and +124% annually. While gaming revenues grew +67% and 47% on a quarterly and annual basis respectively.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
Charts of the week
Summary:
Rates are rising for the right reasons. The economy is past recovery mode and now moving into growth mode. Real rates shouldn’t be negative in this environment. The latest CPI report showed an annual increase of 1.4% (and by all accounts it should increase in the months ahead) so a 10 year treasury rate of 1.46% pretty much brings real rates back to 0%. This is not a big deal, especially with an earnings yield of 4.5%.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
Earnings look poised to grow +20% this year and I think that estimate could be on the low side if the return to normalcy remains on schedule. The economy looks poised to grow at the fastest pace in decades, and valuation is still reasonable. Don’t allow the daily market fluctuations to cause you to lose sight of this. Rising rates will affect each area of the market differently. Make sure to stay well diversified by adding some small cap, international, and quality value stocks to go with those high flying growth stocks.
Inflation may prove to be the biggest threat going forward. I’m still not convinced the Fed will be able to maintain their accommodative policy stance for years (as they seem to suggest), and this could prove to be disruptive to markets. But if I’ve learned one thing over the last decade, its to focus on what is happening, and not on what might happen at some point down the road.
Next week we have 14 S&P 500 companies reporting earnings. I’ll be paying close attention to MercadoLibre (NASDAQ:MELI)) and Zoom Video (NASDAQ:ZM) on Monday, Target (NYSE:TGT) and Veeva Systems (NYSE:VEEV)) on Tuesday, Okta (NASDAQ:OKTA) on Wednesday, and Broadcom (NASDAQ:AVGO) and Costco (NASDAQ:COST) on Thursday. For economic data we have the ISM Manufacturing and Services report, along with the employment report on Friday.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website. Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.