Week of May 2 2021

Market Wrap

Narratives

The trade of 2021 has been long copper (+27.9%) and short the 30-year Treasury (-13.8%). Copper touched $10,000 this week and was poised for a new record. Q1 witnessed the first bond bear market in 40 years, depending on your benchmark. The inflation theme and surging commodity prices, including metals is pervasive. Asset price inflation is now mutating into real estate and commodities. The next leg of the trade is wage acceleration, new highs in oil and further breakdown in long duration stocks - Michael Hartnett, BofA

Week Ahead

All eyes turn to the US jobs report due Friday, which will probably point to an acceleration in the labor market recovery. Elsewhere, UK local elections are being held on Thursday; while the earnings season continues, with Pfizer and General Motors due to report their quarterly results. Worldwide PMI surveys will be in the spotlight, as well as monetary policy action by central banks in the UK, Australia, Thailand, Norway, Brazil, Malaysia and Turkey. Other releases include trade figures for the US and Canada, key factory data for the US, Brazil, France and Germany, and GDP updates for Hong Kong and Indonesia.

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, 60% of the companies in the S&P 500 have reported actual results for Q1 2021 to date. Of these companies, 86% have reported actual EPS above estimates, which is above the five-year average of 74%. If 86% is the final percentage for the quarter, it will mark the 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 22.8% above the estimates, which is also above the five-year average of 6.9%. If 22.8% is the final percentage for the quarter, it will mark the second-highest 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 45.8% today, compared to an earnings growth rate of 33.8% 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 multiple sectors (led by the Information Technology, Communication Services, and Consumer Discretionary sectors) were responsible for the significant improvement in overall earnings for the index during the past week. Positive earnings surprises reported by companies in the Financials, Information Technology, Communications Services, and Consumer Discretionary sectors have been the top contributors to the increase in overall earnings for the index since the end of the first quarter.

If 45.8% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth reported by the index since Q1 2010 (55.4%). The unusually high growth rate is due to a combination of higher earnings in Q1 2021 and an easier comparison to unusually weak earnings in Q1 2020 due to the negative impact of COVID-19 on numerous industries. Ten sectors are reporting year-over-year earnings growth, led by the Consumer Discretionary, Financials, Materials, and Communication Services sectors. The Industrials sector is the only sector reporting a year-over-year decline in earnings.

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 58.3%. The forward 12-month P/E ratio is 22.0, which is above the five-year average and above the 10-year average. During the upcoming week, 133 S&P 500 companies (including three Dow 30 components) are scheduled to report results for the first quarter.

In terms of revenues, 78% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 64%. If 78% is the final percentage for the quarter, it will tie the mark (with Q4 2017) for the second-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 3.7% above the estimates, which is above the five-year average of 1.0%. If 3.7% 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 9.1%, compared to year-over-year growth in revenues of 7.5% last week and year-over-year growth in revenues of 6.2% at the end of the first quarter (March 31). Positive revenue surprises reported by companies in multiple sectors (led by the Information Technology and Communication Services sectors) were responsible for the substantial increase in overall revenues for the index over the past week. Positive revenue surprises reported by companies in the Financials, Information Technology, Communication Services, and Energy sectors have been the largest contributors to the increase in overall revenues for the index since the end of the first quarter.

If 9.1% is the actual growth rate for the quarter, it will mark the highest year-over-year revenue growth reported by the index since Q2 2018 (10.5%). Nine sectors are reporting year-over-year growth in revenues, led by the Information Technology, Consumer Discretionary, and Communication Services sectors. Two sectors are reporting a year-over-year decline in revenues: Industrials and Energy.

S&P 500 Futures

Bull vs Bear

This Week

Bulls will seek to maintain control and ideally maintain value above the WLO 4163.75. Opening pivot is the 4143.50 (ITF Demand Line), which if taken early opens the door for a retest and of the poor WLO.1 4110.50 (-1.53%).

Last Week

Bulls will seek to maintain control and ideally maintain value above Friday's VAL (4160.00). Opening pivot is the 4145.00 (Gamma Volatility Trigger), which if taken early opens the door for a retest and of the poor WLO 4110.50 (-1.46%).

Bears will seek an early break and hold below the 4163.75 and ideally 4143.50 on a closing basis. This will trigger a short-term change of condition (negative gamma) and create the requisite fuel to potentially retest 4110.50. Change of LTF condition will require break below the prior 2w TR (4101.25, -1.75%).

Bears will seek an early break and hold below the 4149.00 and ideally 4131.75 on a closing basis. This will set the sights on last week's poor low at 4110.50. Change of condition will require sustained break below the prior 2w TR (4101.25, -1.68%).

Indicators