As earnings season kicks off, one investment bank says expectations still aren’t high enough as it lifts S&P 500 forecast

Earnings season is kicking off to unbelievable expectations. Analysts predict 64% development in earnings per share from S&P 500 firms within the second quarter, in accordance with knowledge from FactSet.

To strategists at UBS, these lofty expectations nonetheless aren’t excessive sufficient. The financial institution mentioned earnings could develop 80%. “The ebbing of the pandemic and the large authorities response to it are the first drivers of the revenue surge,” mentioned strategists led by David Lefkowitz, they usually mentioned it’s illogical to anticipate outcomes to say no sequentially from the primary quarter.

“Many customers are itching for a way of normalcy and family stability sheets are flush with money suggesting spending has been — and can proceed to be — stable,” mentioned the UBS strategists. And whereas prices are clearly rising, they mentioned, sturdy income is greater than compensating. “Internet revenue margins ought to hit a brand new all-time excessive. Sometimes, margins take their cue from income development. When income development is powerful, margins rise, even when prices are additionally rising,” they mentioned.

The strategists lifted their S&P 500

view for the tip of the yr to 4,500 from 4,400, and their June 2022 view to 4,650 from 4,550. The S&P 500 ended Monday at 4,384.63. “Our worth targets assume a ahead P/E of 20.5x — barely under at the moment’s 21.6x P/E. Whereas valuations are excessive and stay above historic averages, they’re cheap within the context of very low rates of interest. Valuations usually solely contract when buyers worry a pronounced development slowdown is within the playing cards or central banks are making a coverage error. Our outlook for wholesome ISM [Institute for Supply Management] readings over the subsequent yr additionally suggests additional upside for shares,” they mentioned.


By way of positioning, they proceed to advocate a cyclical tilt. “We have now a reasonably most popular view on shopper discretionary, vitality, financials, and industrials and a much less most popular view on shopper staples and utilities. In our view, worth shares look extra enticing than development shares,” they mentioned. Development shares, they added, are on the largest premium to worth for the reason that dot-com bubble.

Right here come the earnings

JPMorgan Chase

and snacking big PepsiCo

beat expectations on second-quarter earnings, as Goldman Sachs

readies its outcomes.

U.S. shopper worth knowledge is due at 8:30 a.m. Jap, with expectations for a slight cooling in June to 0.5% monthly growth each on the headline and core degree. “We predict that the reopening results continued to ease in June after a step in that path in Might,” mentioned Rubeela Farooqi, chief U.S. economist at Excessive Frequency Economics.

China’s export growth surged in June, rising 32% year-over-year, in a optimistic signal for world financial demand.

The value of lumber futures

— the posterchild for runaway inflation as economies reopened — really turned unfavourable year-over-year on Monday.

St. Louis Federal Reserve President James Bullard instructed The Wall Avenue Journal that the time is true to end the Fed’s stimulus efforts, only a day after New York Fed President John Williams mentioned such exercise ought to proceed.

The markets

U.S. inventory futures


have been regular after the thirty ninth report excessive of the yr for the S&P 500

The yield on the 10-year Treasury has crept as much as 1.36%. Oil

was buying and selling slightly below $75 a barrel.

Random reads

Gyms in Seoul are being forced to ban fast music, on the grounds that intense exercises might exacerbate the unfold of coronavirus.

The odd story of 1,100-year-old silver cash minted in France that have ended up in a cornfield in Poland.

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