Perspectives

The resiliency of US stocks has been remarkable in recent weeks with rising inflation, weaker than expected employment, fiscal stimulus decelerating, geopolitical tensions rising, and new fiscal policy negotiations in disarray. Still, we could not help but notice the change in sentiment among investors this week following a second disappointing employment report. Investors are grappling with tighter China monetary policy and fading fiscal stimulus. Nearly all of the discussions among investors … View More

As the markets’ muted reaction to higher-than-expected inflation rates has indicated, the Fed appears to have done a great job in convincing investors, and perhaps themselves, that signs of persistently higher inflation will be fleeting, or in the Fed’s current parlance that has the feel of being a potential punchline in economic history, “transitory.” (One can’t help but wonder whether the “WIN” buttons from the 1970s (Whip Inflation Now) may somehow be reincarnated.) To the exten… View More

87.5% of Companies Beat Earnings Estimates in 1Q’21 With 99% of the S&P 500 having reported, it’s fair to say that 1Q’21 was a blowout season for earnings. 87.5% of companies beat their earnings estimates for the quarter, a record high going back to the mid-1990s and well above the long-term historical average of 65%. 2021 EPS Growth Revising Up, 2022 Revising Down The S&P 500’s 2021 estimated EPS growth began the year at 23.3% and, with the help of robust earnings numbers fro… View More

Stimulus-boosted demand is still outpacing supply. The Atlanta Fed’s tracking estimate for U.S. 2Q real GDP is at 9.3% q/q annualized. Consumption should shift from goods to services over the next several quarters (pent-up demand). In the meantime we have inflation. U.S. core PCE inflation was 3.1% y/y in April. Central bankers have labeled price moves as transitory, but this position is likely to be challenged in the near-term given continued bottlenecks. U of Michigan surveys of inflation ex… View More

Philip Lane, the ECB’s chief economist, said last week that "we have a lot of work to do (to raise inflation) … This narrative of a new inflation environment, I just put very little weight on it" (Reuters). Global central bankers are sticking by their models. But this is likely to get more difficult as the year progresses. The duration & composition of inflation (rather than the number we pop up to) is important for monetary policymakers. But different data may matter for investors (espe… View More

With 90% Reported Earnings Growth Still Greater Than 50% For 1Q With 90% of S&P 500 companies reporting earnings thus far, earning growth for 1Q is still expected to be greater than 50%, while revenue growth is near 13%. We do not anticipate any material changes this upcoming week and expect most investors to begin thinking about 2Q and beyond. 2Q Earnings Growth Expected To Be Just As Strong Currently, the second-quarter earnings season is expected to see earnings growth just as strong a… View More

The big headline is that year-over-year inflation came in at +4.2%. What the headline leaves out is that inflation hit a period low in May 2020, meaning much of the inflation data we are seeing now is simply “catching up” to where things would have been if we had never had the 2020 recession. It also fails to mention that inflation almost ALWAYS runs higher during the recovery from a recessionary period. Summary: More often than not, stocks appreciate in an inflationary environment Cash l… View More

We remain focused on the economy’s progression through the traditional start-of-cycle sequence, that is: a catalyst – in this case, the broad distribution of the vaccine and the re-opening of the economy – leads, in succession, to an increase in activity, demand, output, revenue, investment, and profits. By our lights, the durability of the expansion is largely defined by the self-reinforcing increase in corporate investment fueled by the post-contraction repair of the revenue stack. The s… View More

It’s been more than a year since the Technology sector has made any relative progress vs. the S&P, it’s the longest stretch of indifference since roughly 2013. Granted the bar has been high given the broader market’s run, but nevertheless, it continues to mark a noted shift in tone, made all the more significant given a static Fed and some great earnings last week. Last May over 70% of Technology stocks were in a relative uptrend vs. the S&P (easy to find a leader), while today’s… View More

In a gallop poll out today: Current Economy Evaluations Improved, but Have Been Better During Pandemic In the new survey, 28% describe current economic conditions as either excellent or good, while 26% say they are poor. Last month, 23% rated current conditions as excellent or good and 31% as poor. The April ratings are not the best they have been for this aspect of the index during the pandemic. In November, positive evaluations of current economic conditions exceeded negative ones by 13 per… View More