Our Market Optics chartbook contains data-driven insights that power our portfolio management teams’ views, ideas, and decisions. Each week, we’ll take a look a closer look at one of the charts.
This week’s topic: Equities: Earnings Growth
- First-quarter earnings season is basically done and, to few people’s surprise, there were lots of positive surprises. The consensus seemed to be calling for the S&P 500 Index to have around 15% year-over-year earnings growth. Instead, it was just over 50%. The largest growth came from consumer discretionary (+230%) followed by financials (+140%). Industrials had their earnings fall 1%.
- Using the price-to-earnings multiple as a measure of value is a crude metric. It is rather short-sighted, especially given how volatile earnings can be. Prices relative to their historical peak earnings may be a better guide as to where the market doesn’t have too high of hopes for an improvement in the earnings fundamentals of businesses. On that measure, value stocks in the U.S. and international exposure could be considered relatively attractive.
- The economic restart in Europe and Japan was delayed compared with what was experienced in the U.S. Many U.S. companies “grew” into their price-to-earnings multiples. It is reasonable to expect a similar dynamic with non-U.S. companies.
Originally Posted on May 26, 2021 – Diversification and factors
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