Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Wall Street Week Ahead: Blow-out U.S. earnings suggest market has room to run

Stock MarketsMay 01, 2021 12:01AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: The "Fearless Girl" sculpture is seen outside NYSE during a snow storm in New York 2/2

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. companies are leaping above expectations on first-quarter earnings, giving investors stronger confirmation that profit growth will be able to support the market this year.

A big piece of that growth is coming once again from technology and growth companies, which suggests greater durability in companies that underperformed more economically focused value names for months.

Earnings are rebounding from last year's pandemic-fueled lows. With results in from more than half of the S&P 500 companies, earnings are now expected to have risen 46% in the first quarter from the previous year, compared with forecasts of 24% growth at the start of the month, according to IBES data from Refinitiv.

About 87% of reports have come in ahead of analysts' estimates for earnings per share, putting the quarter on track to have the highest beat rate on record going back to 1994, when Refinitiv began tracking the data.

Some strategists say the stronger-than-expected earnings could drive a richly valued market higher still. The benchmark S&P 500 is trading at about 23 times forward earnings, above the long-average of about 15, based on Refinitiv's data.

"The earnings results are really not being fully priced in yet, and that's because you're seeing estimates for the back half of the year start to pick up now in response to this better-than expected environment. That says to us there's still more room," said Eric Freedman, chief investment officer at U.S. Bank Wealth Management.

The high percentage of beats also follows many quarters where companies were holding off on giving guidance on the future, making it harder for analysts to estimate results for this year.

Citing stronger earnings, Jonathan Golub, chief U.S. equity strategist and head of quantitative research at Credit Suisse (SIX:CSGN) Securities, on Friday raised his 2021 S&P 500 price target to 4,600 from 4,300. The S&P 500 index was last at about 4,180.

Stocks have had little reaction to results overall so far. The S&P 500 is up more than 11% since Dec. 31. The index is up less than 2% since mid-April when the earnings period kicked in to high gear, but remains near record highs.

Earnings also are raising some fresh questions in the debate over growth versus value. After a decade of steadily under-performing the overall market, value has been a favorite among some investors as a bet on the reopening of the economy.

However, "tech is showing an ability ... to still create as good, if not superior, sales growth to cyclicals. That's what I find amazing," said David Bianco, Americas chief investment officer for DWS.

"Tech is as much as of a reopening play as everybody else," he said.

Investors will be watching reports in the weeks ahead to see if the trend continues. Results are expected next week from a wide range of companies including Activision Blizzard (NASDAQ:ATVI), Cummins Inc (NYSE:CMI), ConocoPhillips (NYSE:COP) and Pfizer Inc (NYSE:PFE) .

The first-quarter results come after a months-long rally in value stocks as investors bet on the reopening of businesses as COVID-19 vaccines became more available.

Value has outperformed growth names that include heavily weighted technology stocks, and for the year so far, the Russell 1000 value index remains up about 15%, while the Russell 1000 growth index is up about 8% in that time.

Technology-related companies as well as banks - value trade favorites - have had the largest percentage point contribution to estimated first-quarter S&P 500 earnings, with JPMorgan Chase & Co (NYSE:JPM) and Apple Inc (NASDAQ:AAPL) at the top of the list, based on Refinitiv's data.

Tech is also among the strongest sectors for year-over-year sales growth for the quarter, Bianco noted.

While the risks of higher inflation and possibly higher taxes have given some investors reason to become more cautious on growth shares, earnings may make them think twice about avoiding the group.

"It pays for a lot of investors to be balanced between value and growth," said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute in St. Louis.

"We're actually carving out a third group ... defensives," he said, adding that those are the areas for investors to avoid for now.

Wall Street Week Ahead: Blow-out U.S. earnings suggest market has room to run
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (11)
Mike Brarey
Mike Brarey May 02, 2021 10:22PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
with this monetary environment good news is bad news, don't be fooled.
Mike Brarey
Mike Brarey May 02, 2021 10:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The title shows evident lacking of understanding of "valuation" concept.
Chris Sundo
Chris Sundo May 01, 2021 2:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
'..stronger-than-expected earnings..' LOL .. Sure, after excessively driving the market down in 2020 by heavily shorting from the big hands, only to pick up the pieces by the big hands, then excessively skewing the estimates and fanning the flames, and then excessively undervaluing reality .. Man, the USA financial news are the biggest fraud in history. Everything is distorted and MISREPRESENTED, all under the eyes of the existing leaders. Why can't leaders understand that tweaking the roulette wheel in favor of those who don't need the money anymore will hasten the collapse as it happened to Archegos' Bill Hwang who greedily leveraged his 30 Billion wealth despite not needing a penny of such excessive risk? When the federal government allows the ultra-rich market makers to milk the system, then the system gets closer to the brink and become out of balance.
Chris Sundo
Chris Sundo May 01, 2021 2:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Let's gap down on Monday and then rocket higher for 'two weeks'
TL Chan
TL Chan May 01, 2021 10:45AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You buy the value stock and hold bag for how long, at this high price level, no way ! I will NOT tell people to buy value stocks now, because there are none!
TL Chan
TL Chan May 01, 2021 10:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You buy the value stock and hold bag for how long, at this high price level, no way ! I will tell people to buy value stocks now, because there are none!
TL Chan
TL Chan May 01, 2021 10:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They, the fund house, except Berkshire, are dumping not only high pe tech stocks, but also value stocks to the retail investors! Where to find value stocks now, tell me !
TL Chan
TL Chan May 01, 2021 10:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
it is difficult to understand why this authors and others write something like this to break their reputation. Look at Thursday and Friday, More room to run, are you kidding ? Don't insult the intelligence of the general investing public.
Mart Bab
Rubberduck1973 May 01, 2021 4:37AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
We bought the rumor. And now we will sell the news. You can already see this happening on all the indexes
Dave Jones
Dave Jones May 01, 2021 4:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
blow out earnings? then why do you still need 120 billion a month in QE? Please explain!
Modern Matrix
Modern Matrix May 01, 2021 12:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
pump it.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email