Weekly Market Guide
With 86% of the S&P 500’s market cap having already reported, the historic Q1 earnings season is approaching an end. 87% of companies have beaten earnings estimates by an aggregate 23.6% rate- largest surprise on record! Q1 earnings growth is expected to finish at 45% (more than double the 21.6% growth estimate when earnings season began). Forward sales and earnings estimates are being revised significantly higher as a result, along with margin estimates (at record levels). To put in perspective how sharp the S&P 500 earnings estimate revision has been this year, we look to trends over the past 20 years. In normal years, estimates typically start high and are revised lower (-2.2% average at this point of the year); while coming out of recessions, analyst estimates are typically too low (i.e. 2010 and 2004 saw a 3.9% average upward revision). Comparatively, 2021 has seen an enormous 12% rise in estimates already this year- fueled by unprecedented levels of stimulus and an economic reopening. Importantly, we expect this upward trend in earnings estimates to continue, which (along with robust earnings growth) remains supportive of equity markets.
Despite strong Q1 results, the 3-day average price reaction for Technology companies has been disappointing. We do not like this signal being given by Technology, as this is the second consecutive quarter of good results but sloppy price action. Our interpretation is that relative performance may continue to struggle for now, as the market focuses on buying Value (and using Growth as the source of capital). Fundamentals remain strong and overall price trends remain supportive, so we are not negative on Technology- we just do not think they are ready to regain market leadership yet and are likely to see weaker relative strength in the period ahead. With the sector oversold and at 50 DMA support, a bounce is likely in our view- which those too overweight can use to lighten their exposure.
On the flip side, some of the deep-cyclical sectors with more Value exposure- i.e. Financials, Energy, Industrials, Materials- have shown good reactions during earnings season. We interpret these reactions as supportive of trends for Value and continued rotation into the more “recovery-oriented” areas. Technically, Value looks like it will continue its outperformance vs Growth. After relative strength trends consolidated, Value was able to hold technical support at its prior relative strength break out. On the flip side, Growth failed to overtake resistance at its prior relative strength breakdown. And fundamentally, Value remains relatively undervalued at an 8% discount to its 15-year average while providing more earnings leverage to the economic recovery in our view. As such, we recommend continuing to build Value exposure in portfolios.
IMPORTANT INVESTOR DISCLOSURES
This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.
Index Definitions
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.
The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.
MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.
MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index’s three largest industries are materials, energy, and banks.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
International Disclosures
For clients in the United Kingdom:
For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers and is not intended for use by clients.
For clients in France:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in “Code Monetaire et Financier” and Reglement General de l’Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers.
For institutional clients in the European Economic rea (EE ) outside of the United Kingdom:
This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
For Canadian clients:
This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document. In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.
Broker Dealer Disclosures
Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and may lose value
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.