Weekly: Assessing earnings and economic outlooks

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Chief Investment Office04 May 2021
  • Equities: Strong corporate earnings underline the resilience of US equities
  • Credit: Risk free is not riskless in fixed income
  • FX: DXY depreciated on reflation hopes; Export-led Asian currencies held back by US disappointments
  • Rates: USD rates in consolidation mode ahead of payroll numbers
  • Thematics: Singapore REITs – Will tighter COVID-19 measures bite?
Photo credit: AFP Photo

Strong corporate earnings underline the resilience of US equities. Riding on the tailwinds of robust macroeconomic data and strong corporate earnings, the rally in the S&P 500 Index remains unabated. On a year-to-date 4M21 basis, the index has rallied 11.8% with broad-based gains seen across the Energy, Financials, Real Estate, and Communications Services sectors. The strong showing displayed by US corporates in the 1Q21 reporting season suggests that the positive momentum will persist and listed below are some of the key highlights:

  • 87% reported positive earnings surprise and the momentum was particularly strong in sectors like Technology (97%), Consumer Discretionary (93%), and Financials (93%).
  • Actual earnings exceeded consensus forecast by 23% in aggregate. The strongest earnings beat is seen in the following sectors: Consumer Discretionary (62%), Financials (37%), and Communications Services (35%).

Earnings upgrades to drive further upside for S&P 500. In 2020, the rally in the S&P 500 was a valuation multiple expansion story as investors priced in the likelihood of a recovery this year, given massive policy stimulus and rising optimism of a vaccine. But with the S&P 500 currently trading at 23x forward price-to-earnings (P/E), there is limited room for further multiple expansion. Instead, further upside for US equities has to be driven by earnings growth and the strong 1Q21 numbers augur well for the outlook.

Given the strong set of earnings in 1Q21, we believe that there is a compelling case for upward earnings revisions in coming months. Market consensus is expecting US earnings to grow 48.1% in 2021, underpinned by a combination of moderate top-line growth and substantial margin expansion. As the US economic recovery gathers momentum, top-line revenue will likely come in stronger than expected in the coming months.

Eyes on nonfarm payrolls. On the economic front, the US jobs market has seen strong recovery and this week’s nonfarm payroll data will be closely watched. Market consensus is expecting jobs gains of 995,000 in April, while the unemployment rate is expected to decline to 5.8%. An improving jobs market augurs well for the outlook of domestic consumption and US housing demand.


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