Week of Apr 18 2021

Market Wrap

As of @April 16, 2021

Narratives

We have seen SPX Put Skew absolutely rinsed from prior upper 90%ile ranks to current 10-20-30th %ile, while SPX Call Skew has gone crazy-bid into 90s-100th %ile for near-to intermediate-dated stuff, which only a few months ago was lingering in the teens / 20s. The aggregate VIX ETN Net Vega position has decreased by nearly $85mm from the earlier YTD highs as prior long-vol hedges were reduced or monetized, allowing iVol to further soften from the sticky higher levels experienced the first few months of the year - Charlie McElligott, Nomura.

As for realized vol, the move back lower has catalyzed re-leveraging from the vol control universe to the tune of some $27 billion over the past month. If equities can remain well-behaved, the background bid from vol control could continue - Nomura

The effect of rising input costs will vary depending on company margin profiles and ability to pass through costs to end consumers. The details of tax reform will drive wide variation in the size of the hit to company earnings, while only certain companies are likely to be direct beneficiaries of infrastructure spending - Goldman Sachs

The affection for stocks is a departure from the past decade where investors funneled money to fixed income. The about-face follows the S&P 500’s biggest 12-month rally since the 1930s. But the tide may be turning; total US equity call options volume have dropped to their lowest level since late last year, albeit still elevated by historical standards - Goldman Sachs.

Week Ahead

The first-quarter earnings season continues next week, with companies such as IBM, Netflix, Intel, Johnson & Johnson and P&G reporting their results. Elsewhere, flash PMI surveys for the US, UK, Eurozone, Japan and Australia will be keenly watched, while central banks in the Euro Area, China, Indonesia, Canada and Russia will be deciding on monetary policy. Other key data to follow include: US existing and new home sales; UK inflation data and unemployment rate; Eurozone consumer confidence; Japan trade balance and inflation; and Australia retail sales.

‣

America

‣

Europe

‣

Asia

FactSet Earnings

At this point in time, more S&P 500 companies are beating EPS estimates for the first quarter than average, and beating EPS estimates by a wider margin than average. As a result, the index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the first quarter. The index is now reporting the highest year-over-year growth in earnings since Q3 2010 for Q1. Analysts also expect double-digit earnings growth for the remaining three quarters of 2021. These above-average growth rates are due to a combination of higher earnings for 2021 and an easier comparison to weaker earnings in 2020 due to the negative impact of COVID-19 on numerous industries - FactSet

Overall, 9% of the companies in the S&P 500 have reported actual results for Q1 2021 to date. Of these companies, 81% have reported actual EPS above estimates, which is above the five-year average of 74%. If 81% is the final percentage for the quarter, it will tie the mark (with Q2 2018) for the second-highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting earnings that are 30.3% above the estimates, which is also above the five-year average of 6.9%. If 30.3% is the final percentage for the quarter, it will mark the largest earnings surprise percentage reported by the index since FactSet began tracking this metric in 2008.

Due to the number and magnitude of these positive EPS surprises, the index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the first quarter. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the first quarter is 30.2% today, compared to an earnings growth rate of 24.6% last week and an earnings growth rate of 23.8% at the end of the first quarter (March 31). Positive earnings surprises reported by companies in the Financials sector (led by JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America, and Wells Fargo) were mainly responsible for the improvement in overall earnings for the index during the past week. Positive earnings surprises reported by companies in the Financials sector (led by these same five companies) have also been the top contributors to the overall increase in earnings for the index since the end of the first quarter.

If 30.2% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth reported by the index since Q3 2010 (34.0%). The unusually high growth rate is due to a combination of rising earnings in Q1 2021 and an easier comparison to weaker earnings in Q1 2020 due to the negative impact of COVID-19 on numerous industries. Nine sectors are reporting (or are expected to report) year-over-year earnings growth, led by the Financials, Consumer Discretionary, and Materials sectors. Two sectors are reporting (or are expected to report) a year-over-year decline in earnings: Industrials and Energy.

Looking at future quarters, analysts project double-digit earnings growth for the remaining three quarters of 2021, with earnings growth expected to peak in Q2 2021 at 54.6%. The forward 12-month P/E ratio is 22.5, which is above the five-year average and above the 10-year average. During the upcoming week, 81 S&P 500 companies (including 10 Dow 30 components) are scheduled to report results for the first quarter.

In terms of revenues, 84% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 64%. If 84% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive revenue surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting revenues that are 3.3% above the estimates, which is above the five-year average of 1.0%. If 3.3% is the final percentage for the quarter, it will mark the largest revenue surprise percentage reported by the index since FactSet began tracking this metric in 2008.

Due to the number and magnitude of these revenue surprises, the blended revenue growth rate for the first quarter is higher now relative to the end of last week and relative to the end of the first quarter. As of today, the S&P 500 is reporting year-over-year growth in revenues of 7.0%, compared to year-over-year growth in revenues of 6.4% last week and year-over-year growth in revenues of 6.3% at the end of the first quarter (March 31). Positive revenue surprises reported by companies in the Financials sector were mainly responsible for the increase in overall revenues for the index over the past week. Positive revenue surprises reported by companies in the Financials sector have also been the largest contributors to the increase in the overall revenues for the index since the end of the first quarter.

If 7.0% is the actual growth rate for the quarter, it will mark the highest year-over-year revenue growth reported by the index since Q3 2018 (8.6%). Eight sectors are reporting (or are expected to report) year-over-year growth in revenues, led by the Information Technology, Health Care, and Communication Services sectors. Three sectors are reporting (or are expected to report) a year-over-year decline in revenues, led by the Energy and Industrials sectors.

Metric	UpDn	This Week	Prior Week	Comments
Forward 12-mo Estimate	🔵	184.05	183.34	The new 4q estimate now measures Q221 → Q122
Forward 12-mo PE	🔵	22.7	22	vs. @December 31, 2020 26x
Earnings Yield	🔴	4.4	4.44	vs. @December 31, 2020 4.23%
2y Combined Average Growth Rate %	⚪️	6	6	This average has been consistent for 6-8 weeks.

‣

FactSet Charts

S&P 500 Futures

Monthly Timeframe (Full Session) - Price acceptance and range extension have followed the breakout from the 3950s. While the macro backdrop remains supportive, LTF breakouts have (all) been (eventually) retested.

Weekly Timeframe (Full Session) - Yet another closing ATH (and spike formation) on Friday. That said, take notice of the increasing poor structure below we continue to carry forward. Also notice the divergence between the position of close and value combined with the growing succession of naked WVPOCs.

240m Bar Chart (Full-session, 9-week look back) - Notice the absence of meaningful (opposing) selling pressure over the past 2 weeks (Pane 3). At some point, one-sided trade will cease, but it's folly to predict when. Moreover the ITF regression channel has yet to have tested its +2 SD level; we have only recently re-established price acceptance above the regression line.

Bull vs Bear

This Week

Bulls will seek to maintain control and ideally maintain value above the prior week's range and 4121.50 Axis Line (-1.31%) and ideally 4100 (-1.83%). LTF bullish configuration remains intact above 3928.75 WLO.3 (-5.93%).

Last Week

Bulls will seek to maintain control and ideally maintain value above 4100 (-0.47%). ITF bullish configuration remains intact above 3965 (-3.75% Vol Trigger). LTF change of condition on a break of 3928.75 (WLO.1 -4.63%) on a closing basis.

Bears will seek to break and hold below the 4121.50 Axis Line (-1.31%) on a closing basis. In their favor, the lack of selling pressure over the past two weeks implies one-sided market positioning, which has also resulted in a litany of poor structure leading back to a retest of 3978.50 (-4.74%).

Bears will seek to contain range extension above 4100.00. In their favor, the lack of selling pressure thru last week implies one-sided market positioning, which if and when unwound could create a fast trip back down to 4021.00 WLO (-2.39%) and cessation of 1TFU.

Indicators

‣

Positioning

‣

Sentiment

‣

Optix

‣

Volatility

‣

Breadth

‣

Disclaimer

‣

Credits