US earnings suggest market has room to function By Reuters

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By Caroline Valetkevitch NEW YORK (Reuters) – US companies are beating expectations for first-quarter earnings, giving investors stronger confirmation that earnings growth may support the market this year. A large part of that growth is coming once again from tech and growth companies, suggesting greater durability in companies that underperformed more economically focused value names for months. Profits are recovering from lows caused by last year’s pandemic. With results from more than half of the S&P 500 companies, earnings are now expected to have risen 46% in the first quarter from a year earlier, compared to growth forecasts of 24% at the beginning of the month. , according to IBES data from Refinitiv. About 87% of reports have been ahead of analyst estimates of earnings per share, putting the quarter on track to have the highest beat rate on record since 1994, when Refinitiv began tracking the data. Some strategists say stronger-than-expected earnings could drive a highly valued market even higher. The benchmark S&P 500 index is trading at about 23 times future earnings, above the long-term average of about 15, according to Refinitiv data. “The earnings results are not being fully calculated yet, and that is because the estimates for the second half of the year are beginning to rebound now in response to this better than expected environment. That tells us there is still more room. “said Eric Freedman, chief investment officer at US Bank Wealth Management. The high heartbeat percentage also follows many quarters in which companies were reluctant to give guidance on the future, making it difficult for analysts to estimate this year’s results. Citing stronger earnings, Jonathan Golub, chief US equity strategist and head of quantitative research at Credit Suisse (SIX 🙂 Securities, raised his 2021 S&P 500 price target to 4,600 from 4,300 on Friday. The last was around 4,180. The stocks have had little reaction to the overall results so far. The S&P 500 is up more than 11% since December 31. The index has risen less than 2% since mid-April, when the earnings period accelerated, but remains near record highs. Earnings are also raising some new questions in the growth versus value debate. After a decade of consistent underperformance of the overall market, the stock has been a favorite among some investors as a gamble to reopen the economy. However, “technology is demonstrating an ability … to continue to create sales growth that is as good, if not superior, to cyclicals. That’s what I find amazing,” said David Bianco, chief investment officer for the Americas. by DWS. “Technology is as much a reopening play as all the others,” he said. Investors will be watching the reports in the coming weeks to see if the trend continues. Results are expected next week from a wide range of companies, including Activision Blizzard (NASDAQ :), Cummins Inc (NYSE :), ConocoPhillips (NYSE 🙂 and Pfizer Inc (NYSE :). The first quarter results come after a months-long rally in value stocks as investors bet on reopening businesses as COVID-19 vaccines became more available. Value has outperformed growth names that include heavily weighted tech stocks, and year-to-date the Russell 1000 Value Index is holding around 15%, while the Russell 1000 Growth Index has risen around 8% in that time. Tech-related companies as well as banks, value trading favorites, have made the largest percentage point contribution to first quarter S&P 500 estimated earnings, with JPMorgan Chase & Co (NYSE 🙂 and Apple Inc ( NASDAQ 🙂 at the top of the list. list, based on Refinitiv data. Technology is also among the strongest sectors in terms of year-on-year sales growth during the quarter, Bianco said. While the risks of higher inflation and possibly higher taxes have given some investors reason to be more cautious about growth stocks, the gains may make them think twice about avoiding the group. “Many investors want to balance value and growth,” said Sameer Samana, senior global market strategist at Wells Fargo (NYSE 🙂 Investment Institute in St. Louis. “In fact, we are forming a third group … defensive,” he said, adding that those are the areas investors should avoid for now.