Week of Mar 28 2021

Market Wrap

Narratives

As the reflation rotation has accelerated, the gap between the first two RAI principal components “Growth Optimism” and “Search for Yield” has grown. This has been a drag for long-duration assets in particular, such as Nasdaq, China A-Shares, and Gold. Markets have shifted from fading deflation risk to pricing more of an inflation overshoot, especially in the near term - Goldman Sachs

Week Ahead

All eyes turn to the US employment report next week, which will probably add to signs of a gradual job recovery, as well as worldwide manufacturing PMI surveys and an OPEC+ meeting that is expected to offer guidance into the coalition's production plan from May. Elsewhere, key data to watch for include US construction spending; UK and Russia Q4 GDP updates; Eurozone inflation and business morale; Japan's tankan survey, industrial production and retail sales; Australia, India and Turkey foreign trade figures. Investors will also follow an OPEC+ meeting on Thursday, which is expected to offer guidance for the cartel's production plan from May. Major producers are likely to roll over existing policies once again as tighter pandemic curbs in Europe and vaccine delays darkened fuel demand outlook.

Earnings

Heading into the end of the first quarter, 94 S&P 500 companies have issued EPS guidance for the quarter. This number is below the five-year average of 101. Of these 94 companies, 34 have issued negative EPS guidance and 60 have issued positive EPS guidance. The number of companies issuing negative EPS guidance is well below the five-year average of 66, while the number of companies issuing positive EPS guidance is well above the five-year average of 35 - FactSet

If 60 is the final number of S&P 500 companies issuing positive EPS guidance for the quarter, it will mark the highest number of S&P 500 companies issuing positive EPS guidance for a quarter since FactSet began tracking this metric in 2006. The current record is 57, which occurred in the previous quarter (Q4 2020).

As of today, 86 S&P 500 companies have issued revenue guidance for the first quarter. This number is above the five-year average of 77. Of these 86 companies, 17 have issued negative revenue guidance and 69 have issued positive revenue guidance. The number of companies issuing negative revenue guidance is well below the five-year average of 39, while the number of companies issuing positive revenue guidance is well above the five-year average of 38.

If 69 is the final number of S&P 500 companies issuing positive revenue guidance for the quarter, it will mark the highest number of S&P 500 companies issuing positive revenue guidance for a quarter since FactSet began tracking this metric in 2006. The current record is 62, which occurred in the previous quarter (Q4 2020). Of the 60 companies in the S&P 500 that have issued positive EPS guidance for Q1 2021, 41 of these companies (68%) have also issued positive revenue guidance for Q1 2021.

At the sector level, the Information Technology sector has the highest number of companies issuing positive EPS guidance and positive revenue guidance of all 11 sectors.

In terms of EPS guidance, 29 companies in the Information Technology sector have issued positive EPS guidance for the first quarter, which is well above the five-year average of 17 for this sector. If 29 is the final number for the quarter, it will tie the mark with the previous quarter (Q4 2020) for the highest number of companies issuing positive EPS guidance for this sector since FactSet began tracking this metric in 2006. At the industry level, the Semiconductor & Semiconductor Equipment industry has the highest number of companies in the sector issuing positive EPS guidance in this sector at 10.

In terms of revenue guidance, 43 companies in the Information Technology sector have issued positive revenue guidance for the first quarter, which is well above the five-year average of 22 for this sector. If 43 is the final number for the quarter, it will mark the highest number of companies issuing positive revenue guidance for this sector since FactSet began tracking this metric in 2006. The current record is 35, which occurred in the previous quarter (Q4 2020). At the industry level, the Semiconductor & Semiconductor Equipment industry has the highest number of companies in the sector issuing positive revenue guidance in this sector at 17.

Of the 29 companies in the Information Technology sector that have issued positive EPS guidance for Q1 2021, 26 of these companies (90%) have also issued positive revenue guidance for Q1 2021. Due in part to the large number of companies issuing positive EPS and revenue guidance in this sector, expectations for year-over-year earnings and revenue growth for the Information Technology sector are higher now relative to the start of the quarter.

The Information Technology sector is currently projected to report year-over-year earnings growth of 22.3%, compared to an estimate for year-over-year earnings growth of 11.6% on December 31. The Semiconductor & Semiconductor Equipment industry is projected to report year-over-year earnings growth of 24.3% today, compared to an estimate for year-over-year earnings growth of 5.2% on December 31.

The Information Technology sector is currently projected to report year-over-year revenue growth of 15.5%, compared to an estimate for year-over-year revenue growth of 10.0% on December 31. The Semiconductor & Semiconductor Equipment industry is projected to report year-over-year revenue growth of 19.4% today, compared to an estimate for year-over-year revenue growth of 8.0% on December 31.

It is interesting to note that despite the high number of companies in the Information Technology sector issuing positive EPS and revenue guidance and the upward revisions to EPS and revenue estimates for companies in the Information Technology sector by analysts, the market has not rewarded companies in this sector in recent months. Since December 31, the Information Technology sector has seen a decrease in price of 0.8% (to 2272.90 from 2291.28). By comparison, nine of the other 10 sectors in the S&P 500 have seen an increase in price over this time frame, Overall, the S&P 500 has seen an increase in price of 4.1% (to 3909.52 from 3756.07) since December 31. However, it should also be noted that the Information Technology sector also had the largest price increase of all 11 sectors during all of 2020 at 42.2%. The forward 12-month P/E ratio for the Information Technology sector is 25.4, which is above the five-year average of 19.6 and above the 10-year average of 16.5.

S&P 500 Futures

Bull vs Bear

This Week

Bulls will seek to maintain control and attract momentum above 3939.00 (WVAH). A significant directional move will still require resolution TR 3720.50 → 3959.25 (-6.16% → -0.14%); Friday's closing spike will require meaningful follow-through to confirm, but cessation of 1TFD on WTF is likely at minimum.

Last Week

Bulls will seek to re-establish control and attract momentum above 3930 (+0.78%) coinciding with the 3d VWAP and naked WVPOC 3936.00. A significant directional move will require resolution TR 3720.50 → 3959.25 (-4.6% → +1.53%).

Bears will seek to attract fresh sellers should buying momentum fail to materialize early on. A short-term back & fill opportunity coincides with reversion to the mean (WVPOC 3925.00 -1.0%). A change in condition will require a break and hold back below WLO 3843.25 (-3.06%).

Bears will seek to maintain control below 3900 and ideally break and hold below WLO 3875.00 (-0.63%) and seize the LVN back & fill opportunity that coincides with the midpoint of TR 3720.50 → 3959.25 (3840.00, -1.53%).

Indicators