We’re almost 75% through the earnings season in US now. The positive surprise momentum from 3Q20 continues this quarter again as the numbers roll out. So far the avg. sales beat is 3,5% and earnings beat is a massive 19%. 👍👍🤗
𝙇𝙚𝙖𝙙𝙞𝙣𝙜 𝙨𝙪𝙧𝙥𝙧𝙞𝙨𝙚 𝙨𝙚𝙘𝙩𝙤𝙧𝙨: 📈
Consumer Services – the sector clearly benefits the revival trade in the economy. The $IYC ETF tracting this sector (not available on eToro) is up 25% YoY and 6%ish YTD. The sector showed (so far) a stunning 127% earnings surprise 😮 for the 4Q20.
Financials – very good numbers from the banks this quarter in general. They mostly enjoy good numbers from investment banking (mergers, acquisitions, IPOs all plenty), trading (volatitlity-driven), but also retail banking. Most of the behemoths here surprised to the upside ($C (Citigroup), $JPM (JPMorgan Chase & Co), $MS (Morgan Stanley), $BAC (Bank of America Corp)). 💷💳
Oil&Gas – here again the revival trade plays a big role. This sector laggs the sales surprise, but beats nicely on the earnings surprise.
𝙇𝙖𝙜𝙜𝙞𝙣𝙜 𝙨𝙪𝙧𝙥𝙧𝙞𝙨𝙚 𝙨𝙚𝙘𝙩𝙤𝙧𝙨: 📉
Utilities – as usual at this time of the cycle (heading into recovery), utilities don’t shine. They are a typical anticyclical spacde and this time around it plays out just as usual. ETFs like $XLU are mostly down YoY (-10% in this case) and flat-to-down YTD.
𝙒𝙝𝙖𝙩’𝙨 𝙠𝙚𝙚𝙥𝙞𝙣𝙜 𝙩𝙝𝙚 𝙚𝙦𝙪𝙞𝙩𝙞𝙚𝙨 𝙨𝙤 𝙝𝙞𝙜𝙝?
There’s a few fundamental contributors to the pricing of equities generally. In the long run the very most important ones are obviously the EPS growth (or rather it’s expected trajectory) and the FCF growth. The latter one is possibly the biggest shareholder value creator in the long run. In the midterm run the earnings surprises are possibly one of the most powerful contributors to the performance of stocks. As was the case in 3Q20, so it is now again. The consensus expectations are still way way too low and will possibly take a few more quarters to adjust and shake off the Covid-19 recession. Untill then the so called “wall of worry” on equities ($SPX500 , $NSDQ100 , $DJ30) might constantly be fuelled with marginal new reasons to buy the next dip. So it is happening right now. Even though the trailing valuations are extreme, the positive surprises from the companies support equities as an asset class.
Thoughts guys?
Best, GlobalAlphaSearch
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