Sell in May?

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LPL Research punches holes in the “Sell in May” axiom and reflect on how the economic data continues to come in stronger than expected.

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A truly record breaking earnings season is wrapping up and this week in the LPL Market Signals podcast Ryan Detrick and Jeff Buchbinder discuss just how incredible it really was. They also tackle if we’ve hit a peak in earnings and economic growth, while also playing a fun game of who’s telling the truth.

Earnings Review

At the start of earning season, the S&P 500 Index earnings were expected to be up 24.5% and Jeff stated above 30% was likely. Well, well, well, did corporate American ever top that! With nearly 90% of S&P 500 companies having reported, first quarter earnings are tracking to a remarkable 49% year-over-year increase—more than double the increase as of March 31. Jeff also pointed out that S&P 500 revenue is on track to grow 10% year over year, four percentage points above the March 31 estimate and the most upside FactSet has ever recorded. As a result of the strong earnings season, LPL Research upped our 2021 forecast for S&P 500 earnings to $187.50–$190 per share, up more than $10 from our prior estimate. Ryan didn’t offer much to this conversation, as he is simply out of superlatives to describe how great this earnings season really was.

Peak everything?

Manufacturing and services Institute for Supply Management (ISM) data both missed the mark last week, suggesting we may have hit the cycle high. Given the economy has been growing for about a year, Ryan notes this is perfectly normal for the easy part of growth to peak about now, but that doesn’t mean a recession is around the corning. You tend to see many more years of growth after growth peaks, so this isn’t concerning. Jeff points out that earnings growth likely didn’t peak yet, but we’ll probably see that in the second quarter.

Who is telling the truth?

A few things happened last week that have many investors scratching their heads. For starters, April nonfarm payrolls came in much lower than expected. Jeff notes that this likely isn’t a new trend of weak employment, but probably more a one-off event. Ryan discusses how Janet Yellen maybe was a little too honest, as she said higher rates might need to happen to slow down economic growth. She back-tracked after the fact, but the cat is out of the bag—this is another sign that maybe behind closed doors the thinking is rates will need to be hiked in 2022. Lastly, Jeff discusses President Biden’s concession that he is willing to work with Republicans and his target of a 28% corporate tax rate will likely come in closer to 25%. This is exactly what we’ve been saying for months now.

Tune in now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the US and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunesGoogle Podcasts, or Spotify and find us on the LPL Research YouTube channel.

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IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Member FINRA/SIPC

For Public Use — Tracking: #1-05142124 (05/22)

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