The market narrative so far this year has been a battle between three poles. The first, represented in Goldman Sachs, has been that bad news is good news:
More than 90% of S&P 500 firms have now reported 1Q earnings and the results show EPS rose by 46% year/year, the fastest pace since 1Q 2010.68%of S&P 500 firms beat consensus by more than a standard deviation of analyst estimates, matching the record-high from 3Q 2020. Equity analysts expected EPSgrowth of 20% at the start of the season, but realized growth was 46%. ConsumerDiscretionary (+187%) and Financials (+135%) posted the strongest results. Better-than-expected net profit margins accounted for the majority of the beat (Exhibit 1).
…Our top-down index and sector earnings forecasts are driven by strong sales growth and expanding net profit margins. We forecast S&P 500 sales will grow by13% in 2021 and 9% in 2022. Our FX strategists expect the trade-weighted US dollar will weaken by a further 2% in2021 and 6% in 2022, which should support revenues. The strong sales outlook coupled with elevated operating leverage and cost management should help LTM profit margins register a new record of 11.5% in 2021.
