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HIGH U.S. EARNINGS SPUR OPTIMISM IN STOCK MARKET GROWTH
- By The Financial District
- May 1, 2021
- 2 min read
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, Caroline Valetkevitch reported for Reuters.
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 US 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 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.
