Investors should just stick to facts and fundamentals. Earnings should alleviate many of the fears.
That’s what Marko Kolanovic told Bloomberg in a recent interview that found the JPMorgan quant attempting (again) to explain why it makes sense for investors to remain bullish in the face of mounting geopolitical headwinds.
Maybe Marko will be right (he’s good at that), but we’d be remiss not to note the obvious: the policy and political backdrop is exceptionally fraught and if we don’t get some more visibility on the trade front or on other key areas of concern like say, regulatory risk in tech, it seems likely that the waters will remain choppy for the foreseeable future.
Well speaking of earnings, three quarters of S&P companies will report during the three weeks between April 16 and May 4 and this may give investors an excuse to step back from the geopolitical insanity and the tweets and focus on company fundamentals.
“The bar for 1Q earnings has been raised, given consensus EPS estimates have been lifted by 5% since the passage of tax reform in late December [and] consensus expects S&P 500 EPS will grow by 17% versus 1Q 2017, the fastest quarterly growth since 2011,” Goldman writes, in a note out late Friday before breaking things down as follows:
OK, so that’s all good news, what’s the bad news?
Well, for one thing, high bars set the stage for disappointments and it could well be that with expectations running high, beats are celebrated less than misses are punished.
“Strong expected earnings growth and positive revisions have supported the S&P 500, offsetting an 9% contraction in the forward P/E multiple to 17x,” Goldman goes on to write, effectively suggesting that were it not for enthusiasm about what the tax cuts are ultimately going to mean for corporates, a lackluster quarter for stocks (the first quarterly loss for the S&P since 2015, in fact) might have been materially worse.
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