- Since the start of April, 87% of reporting companies have topped EPS forecasts, 75% have exceeded sales forecasts, 16% have raised guidance, and just 2% have lowered forecasts. Overall, S&P 500 earnings growth is currently on pace to total 44% in the first quarter, which would be the best in a decade (source: Bespoke Investment Group). However, some investors are frustrated that many individual stocks didn’t respond to blow-out earnings (for example, most of the FANG+ stocks), but still the S&P 500 was up 5% for the month, a very solid showing.
- There are comparisons being made between the 2020s and the Roaring 20s of last century. The Spanish flu was followed by a decade that produced a 27.2% annualized real return. Bulls think that Covid-19 will be followed by a long-lasting bull market. But there are numerous reasons why the stock market of the 2020s will not be like the 1920s. First, the 1910s was a terrible decade for the stock market (-4.9% annualized real returns) and so the 1920s had a low basis to build from. In contrast, the 2010s was a high-performing decade, returning 15.3% annualized. Second, this can also be seen with P/E ratios. The P/E ratio at the start of the 1920s was 9.6x versus 20+ today. Finally, the 1920s followed World War 1. Economic booms typically follow major wars. There was no equivalent war in the 2010s.
BIG MONEY POLL OF PROFESSIONAL INVESTORS
We love to read Barron’s semi-annual Big Money Poll of professional investors. It tells us what the diverse group of money managers think about a myriad of topics. The poll’s quite lengthy so what follows is only a summary:
Describe your investment outlook for U.S. equities in the next 12 months.
Bullish 67% (we are bullish)
Is the U.S. stock market overvalued, undervalued, or fairly valued at current levels?
Overvalued 38% (we think slightly overvalued)
Fairly valued 57%
What is the biggest risk to the U.S. stock market in the next 12 months?
Rising interest rates 20%
Covid-19 resurgence/new variants 16%
Higher taxes 13%
Fiscal/monetary policy blunders 11%
Excessive stock valuations 7%
NOTE: We place excessive stock valuations in the top three risks.
Which asset classes do you consider most attractive today?
Equities 64% (we agree)
Real estate 8%
Fixed income 3%
Which sector will perform best in the next 12 months?
Which sector will perform worse in the next 12 months?
Finally, how concerned are you about the federal debt?
Extremely worried 36% (we agree)
Moderately concerned 54%
Not an issue 10%
We find it interesting that 67% are bullish, but only 5% think stocks are undervalued. Our explanation for this is that we have the monetary and fiscal policies of a young, emerging bull market and an economy just coming out of a recession. These early cycle characteristics outweigh the negatives of excessive optimism and high valuations normally seen in more mature bull markets.