Stocks are back at all-time highs while the economy is quickly improving, now comes first-quarter earnings season. This week on the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder discuss why another very solid earnings season is on the horizon. With stocks up more than 80% from the lows last year, the bar is definitely set quite high, but corporate America will likely come through again.
Let’s talk earnings. The last two earnings seasons have come in much better than expected, and this earnings season may be no different as corporate America is poised for big earnings gains in the first quarter of 2021. Given strong economic growth, vaccine distributions, fiscal stimulus, and recent positive trends in company guidance, analysts’ estimates are signaling upside to expectations. Ryan and Jeff explain why first quarter could see a 30% year-over-year increase in S&P 500 earnings per share, the best in over a decade.
Are things too good? With a 37-year high in manufacturing and an all-time high in services data, are things actually too good? Don’t forget, a year ago things were very bad on the economy, yet it was a great buying opportunity for investors. The truth is the bar is set quite high, as high optimism has nearly everyone expecting a stronger economy the second half of the year. Historically, when the ISM manufacturing survey is over 60 (like it is now), 3- and 6-month S&P 500 Index returns have actually been negative. Also, manufacturing tends to peak about a year after a recession ends, likely suggesting economic data going forward could begin to slow.
The Bull is still here. Ryan and Jeff list multiple stats that suggest the bull market could have plenty of time left. One signal they examine is what happens after a solid first quarter. A solid first quarter for the S&P 500 Index could signal continued strength, as historically a gain between 5-10% in the first quarter has led to continued strength the rest of the year 87% percent of the time. Chief Market Strategist Ryan Detrick has called this the sweet spot, as larger gains tend to lead to more muted returns, while weak returns open the door for weak returns the rest of the year.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. All index and market data from FactSet and MarketWatch. This Research material was prepared by LPL Financial, LLC. Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking # 1- 05133437