S&P 500 Earnings Update & Economic Data Review
Michael Gouvalaris | Feb 15, 2021 12:39AM ET
The earnings per share (EPS) for all S&P 500 companies combined increased to $173.65 this week. This marks the 7th straight week the forward EPS has increased.
74% of S&P 500 companies have now reported Q4 results. 82% of those companies have beat earnings expectations, and the combined results have come in 17.3% above expectations. (I/B/E/S data from Refinitiv)
88% of NYSE listed stocks trade above their 200 day moving average. While 88.5% of S&P 500 companies trade above their 200 day moving averages.
Despite the almost meteoric rebound and recovery, there are no technical signs of exhaustion. This doesn’t mean we can’t get a correction, but typically you’ll see bearish divergences arise in these indicators before a major market top. Nothing yet.
Summary/h2
With inflation below the Fed’s 2% target and almost 10 million net jobs below the pre-COVID highs, the Fed is not even thinking about tightening monetary policy. There is no chance they will raise interest rates, and little chance they will reduce monthly asset purchases (to keep long-term rates down) anytime soon.
The solid earnings trend continues, market participation remains strong, and the majority of economic data continues to exceed expectations (Atlanta Fed GDP Now Q1 estimates are currently +4.5%). 2021 is shaping up to be a record for S&P 500 earnings and economic growth.
Still, the M2 money supply has increased by a record amount. It’s hard to envision this won’t create inflationary pressures somewhere down the road. In the past, the Fed’s QE programs increased the monetary base, but since banks didn’t lend those reserves, the hyper inflation predictions never materialized. This is different in my opinion. This has the potential to cause real inflation down the road. But we clearly aren’t there yet.
Why should investors worry about inflation? Simply put, inflation means higher interest rates, higher rates means lower stock valuations (historically), lower valuations mean lower stock prices. Will it be transitory or will it be something more? I’m not sure anyone knows at this point. We are in uncharted territory. It’s easier to lower rates and provide stimulus, than it is to raise rates and tighten policy. Time will tell.
Next week we have 58 S&P 500 companies reporting Q4 results, and for economic data we have retail sales on Wednesday.
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