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The Push and Pull of the current Market and still earnings are good

by Fortem Financial February 14, 2022

After posting back-to-back weekly gains following the big January sell-off, equities were lower last week (S&P -1.8%). Value and small-cap beat growth and large-cap. Oil was higher for an eighth-straight week. The big story was the January CPI inflation surprise and hawkish Fed commentary. Best sectors were energy (+2.1%) and materials (+1.1%); worst sectors were communication services (-3.9%) and technology (-2.9%).

4Q Earnings Now 70% Reported

The fundamental improvement for the aggregate index last week wasn’t enough to keep the S&P in the green. Earnings growth improved to 31% from 27% the week prior while sales growth improved marginally, but the potential Russian invasion of Ukraine led to a sell-off. The fact that earnings growth is set to slow from this elevated level in the 1st half could concern investors from a fundamental standpoint, but largely speaking earnings and sales growth remain sound for now.

Surprise Ratio Lowest Since 1Q’20

The surprise factor for the S&P 500 this reporting season has come down considerably and is now the lowest since the first quarter of 2020. While it is still above the long-term average of 4.1%, analysts’ estimates appear to have caught up to actual company earnings. Stock selection becomes more challenging at this point in the cycle.

Energy Sector Has The Ability To Support Earnings In 2022

Although the energy sector has earned roughly $100bn dollars over the last 12-months, this remains well below its peak earnings potential that was achieved late 2008. Over the last 14 years, profitability has steadily declined bottoming during the shutdowns of 2020. At a time when oil prices are rising and energy demand is soaring, profitability could easily surge past previous levels. This has the ability to support earnings in 2022 for the S&P as a whole and even into 2023 if prices remain high.

You can file this one under very hard to believe!!! the Fed is still buying bonds even though Inflation is at a 40 year high (They are still loosening monetary policy at the same time they are raising interest rates) The Fed has definitely missed the mark in this cycle.

Fed To Purchase Roughly $20bn In Treasuries Over The Next Month

On Friday, the Fed announced they plan to purchase roughly $20bn in treasuries over the next month. This is down from its $40bn announcement in January but nonetheless, they will continue to purchase assets at a time when the market already believes they are behind the curve with rate hikes and is anticipating balance sheet decline.

Source: Strategas


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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