For the first time since the Covid bottom, the S&P 500 heads into earnings with companies needing to come through with strong guidance.
According to Stovall, this may end up being only the second quarter out of 49 in which actual results were lower than end-of-quarter estimates.Typically, EPS estimates begin to outpace the end-of-quarter estimate this early in the reporting cycle, but not this time."You invest in stocks because you want a piece of the action, and the action is earnings and dividends, and if action comes down in terms of earnings growth, that's not good," Stovall said.
Another positive way to read the earnings setup from the street: DataTrek Research still thinks analysts are too low on Q3 and Q4 earnings. That comes back to what DataTrek co-founder Nick Colas says may be the difference between this quarter and every other recent quarter since the Covid outbreak: companies really need to deliver on guidance. Investors are now in the "show me" phase of the earnings recovery, and that is a big change, especially with the S&P performance year-to-date tightly correlated with the earnings expectations: U.S.
"Growth from here will be slow and choppy and subject to external shocks, so how do you put some multiple on that? That's the hard part," Colas said.
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