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Investment strategy
May 2, 2021
4 mins

Earnings and the end of euphoria

May 2, 2021
4 mins
David Bailin
CHIEF INVESTMENT OFFICER
Steven Wieting
CHIEF INVESTMENT STRATEGIST AND CHIEF ECONOMIST
Woman taking in delivery at front door
SUMMARY

Strong earnings reports produced little reaction in equities last week. As the economy reopens, we would look to buy dips in stay-at-home digital companies.


  • A robust Q1 earnings season so far reinforces our optimism that the COVID recession is behind us. Over 85% of S&P 500 companies have exceeded expectations for Q1 earnings so far, beating EPS estimates by 22% on average.
  • The relatively muted market response this week to a much stronger than expected quarter for tech profits (S&P 500 technology ended the week 2% lower) is indicative of high expectations as earnings revisions come back to earth.
  • While many management teams have highlighted rising input costs as a potential headwind to margins, we view these price increases as largely temporary and related pandemic-driven distortions in global supply chains. This is why we expect that though there will be near term inflation in commodities and goods, these are unlikely to persist.

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Insights

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