Thursday, May 13, 2021
A truly record-breaking earnings season is wrapping up and this week in the LPL Market Signals podcast Ryan Detrick and Jeff Buchbinder discuss just how incredible it really was. They also tackle if we’ve hit a peak in earnings and economic growth, while also playing a fun game of who’s telling the truth.
At the start of earning season, S&P 500 Index earnings were expected to be up 24.5% and Jeff said above 30% was likely. Well, well, well, did corporate American ever top that! With nearly 90% of S&P 500 companies having reported, first quarter earnings are tracking to a remarkable 49% year-over-year increase, more than double the increase as of March 31. Jeff also pointed out that S&P 500 revenue is on track to grow 10% year-over-year, four percentage points above the March 31 estimate and the most upside FactSet has ever recorded. LPL Research as a result of the strong earnings season upped our 2021 forecast for S&P 500 earnings to $187.50–$190 per share, up more than $10 from our prior estimate. Ryan didn’t offer much to this conversation, as he is simply out of superlatives to describe how great this earnings season really was, but continues to impress us with the a joke that may top the talking dog jokes, provided by his son.
For the economy, it’s tougher to grow when the bar is raised. Manufacturing ISM data and services ISM data both missed the mark last week, suggesting we may have hit the cycle high. Given the economy has been growing for about a year, Ryan noted this is perfectly normal for the easy part of growth to peak about now, but that doesn’t mean a recession is around the corner. We haven’t recovered the jobs yet, still about 8 million to go, and you tend to see many more years of growth after growth peaks. Jeff pointed out that earnings growth likely didn’t peak yet, but we’ll probably see that in the second quarter.
Who is Telling the Truth?
A few things happened last week that have many investors scratching their heads. For starters, April nonfarm payrolls came in way lower than expected. Jeff noted that this likely isn’t a new trend of weak employment, but probably more a one off event. Ryan discussed how Janet Yellen maybe was a little too honest, as she said higher rates might need to happen to slow down economic growth. She backtracked after the fact, but the cat is out of the bag, this is another sign that maybe behind closed doors the thinking is rates will need to be hiked in 2022. Lastly, Jeff discussed President Biden’s concession that he is willing to work with Republicans and his target of a 28% corporate tax rate will likely come in closer to 25%. This is exactly what we’ve been saying for months now.
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