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In the Global Week Ahead, we wrap up the latest U.S. earnings season.
Zacks Research Director summarized its lessons for us—
The Q1 earnings season turned out to be everything that the market was looking for, and then some.
Companies easily beat top- and bottom-line estimates that had gone up ahead of the start of the reporting cycle, unlike in the past when estimates would go down before earnings releases.
Importantly, the tone and substance of management guidance and qualitative commentary has been very favorable, which is helping sustain the positive revisions trend for the current and coming periods.
For the 425 S&P 500 members that have reported Q1 results already, total earnings and revenues are up +47% and +10.3%, respectively. The proportion of these 425 index members beating EPS and revenue estimates is a very high 85.9% and 76.7%, respectively.
The very high earnings growth rate is not solely a result of easy comparisons to the year-earlier period, but rather reflective of genuine growth across a number of major sectors, including Technology.
We saw that the ‘Big 5’ Tech companies – Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) and Facebook – collectively enjoyed year-over-year growth rates of +104% in earnings on +41.5% in revenues.
We know that these unusually high growth rates would come down as we move through the remainder of the year, as comparisons will increasingly get tougher for these and other companies. That said, the aggregate earnings tally for Q1 is on track to reach an all-time quarterly record, as the chart below shows.
You can see in this chart that the 2021 Q1 record will get eclipsed by the last quarter of the year. In fact, it is very likely that even the Q3 tally will get revised higher than what we are seeing for Q1.
The fact that Q1 earnings are on track to reach an all-time record even though significant parts of the economy are still weighed down by Covid is an impressive achievement.
The sectors still dealing with the pandemic’s effects include the Transportation sector (particularly air carriers) and the Consumer Discretionary sector, which includes the leisure and hospitality businesses.
Next are Reuters’ five world market themes, reordered for equity traders.
But markets aren’t far off record highs and price falls may reflect a setback for tech mega-caps rather than a wholesale exit from stocks. And with real bond yields deeply negative, a selloff should be short-lived.
Yet tailwinds are weakening. The first quarter likely marked the peak of the U.S. growth and earnings rebound. Deutsche Bank predicts a 10% correction in stocks, saying markets fall each time the ISM survey retreats from a peak — which it has just done.
The liquidity tide, too, is ebbing. Most central banks are not yet unwinding money-printing or raising rates but money supply growth has shrunk. And just how transitory will inflation be? As May progresses, these questions won't go away.
(2) Watching U.S. Treasury Auctions for Signs on Rates
Investors will watch the U.S. Treasury’s debt auctions for signs that demand remains steady after a yield surge roiled markets in the first quarter and fanned concerns that higher borrowing costs could hurt stocks, particularly growth sectors like technology.
The Treasury will auction $58 billion of three-year notes on Tuesday and $41 billion of 10-year notes on Wednesday, followed by $27 billion of 30-year bonds on Thursday.
The Federal Reserve's asset purchase schedule is due on May 13. The Fed kept Treasury purchases unchanged at $80 billion per month for the mid-April to mid-May period.
(3) Ah Yes, Bitcoin
Bitcoin hogged the crypto-currency limelight earlier this year, doubling in price before recently losing steam. Now it’s the turn of smaller rivals — the “altcoins” — to have their moment in the sun.
The second-largest coin, ethereum, hit a record $3,560, recently fueled by its use in a bond issue and the booming NFT sector. Meme-based digital coin Dogecoin, originally intended as a satire on the cryptocurrency boom, also hit an all-time high. Their rise knocked bitcoin's share of the $2.4 trillion crypto market to a near-two year low.
(4) Reopening of European Economies Is Close
After weeks of COVID-19 lockdowns, a reopening of European economies is close, and boosting sentiment. Tuesday's German ZEW sentiment survey could confirm a brightening outlook.
Germany might ease curbs on those fully vaccinated or recovered from COVID-19 as early as the weekend. France starts relaxing a night curfew and allowing restaurants to offer outside service from May 19.
After a slow start, the EU is expected to meet its target of delivering first vaccine doses to 70% of adults by end-summer, the Eurozone should get to 50% in June. That’s good news for tourism-dependent economies. Brussels’ recommendation to ease restrictions on some countries and travelers is putting a spring in the step of British airline stocks, too.
(5) Will Fresh Chinese Macro Data Force Government to Make Any Changes?
While global investors focus on inflation, in China it's credit that's the most likely source of pressure for policymakers.
Data on both due in coming days could shape Beijing's outlook, with inflation seen pretty subdued while loan growth will probably chug along.
The politburo recently emphasized steady-as-she-goes policy, but made notable mention of the need to dampen housing speculation and of the government's role in managing financial risks — possibly clues as to areas that might see reform or tightening.
That comes after a wobbly few months in its debt markets, with defaults at state-owned firms in November and trouble at bad-loan giant Huarong rattling confidence in recent weeks. There's no sense yet of a 2018-style de-leveraging push, but authorities might be looking to tap the brakes if loans leap.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s follow the trend this week.
I am going to only show stocks with a Zacks Momentum score of A, and see what I find.
(1) BioNTech (BNTX - Free Report) : Ah yes! The darling mRNA vaccine producer. At $168 a share, this is a $40.6B market cap stock now. I see a Zacks Value score of D, a Zacks Growth score of C (surprising!), and a Zacks Momentum score of A (not surprising).
(2) Western Digital (WDC - Free Report) : After a solid Q1 report, this memory chip company is back in style. I see a $70 share price and a $21.3B market cap. The chip shortage is helping this stock get back in favor with traders. I see a Zacks Value score of C, a Zacks Growth score of F, and a Zacks Momentum score of A.
(3) Orient Overseas International Ltd. (OROVY - Free Report) : This is a shipping transportation company. The stock trades at $85 a share and the market cap is $10.8B. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of A. You can’t beat that.
Vaccines, chips and shipping are hot? That actually makes sense to me.
Key Global Macro
I think the Chinese data, out early this week, will be the most discussed.
On Monday, we get mainland Chinese data on Foreign Direct Investment (+39.9% y/y in the prior report), New Loans (will 2730B move to 1625B this month?), and M2 Money Supply (a healthy +9.4% y/y growth pegged for April).
There is a U.S. Treasury 3-month and 6-month bill auction.
On Tuesday, we get mainland China’s CPI for April. +1.0% y/y is expected. However, their PPI should be up +6.6% y/y in April. That’s a hot reading.
On Wednesday, the U.S. Consumer Price Index (ex Food & Energy) should be up +2.3% y/y in April. Last month, it was +1.6%.
The Fed’s Richard Clarida gives a speech.
On Thursday, there is a 10-yr. U.S. Treasury note auction.
The U.S. PPI (ex-food & energy) should be up +3.1% y/y this month. That’s the same as last month.
U.S. initial jobless claims were 498K last week. What do we get this week? This data is falling, which counters any worries from last Friday’s nonfarm payroll miss. Until it doesn’t…
On Friday, U.S. retail sales may be up only +1.0% in April, after rising +9.7% on the back of stimulus checks in March.
U of Michigan consumer sentiment should be 89.5 in April, in line with the prior 88.3 reading.
Conclusion
I found the top Zacks Rank stocks — the three names I showed you that are trading hot — to be the most interesting Globally-related finds this week.
Keep hot stocks like (BNTX - Free Report) , WDC and OROVY) top of mind.
Fast-moving stocks markets are often solid forward indicators, moving ahead of macro fundamental data that comes out much later.
That’s it for me.
Regards,
John Blank
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3 Fast-Moving Stocks: Global Week Ahead
In the Global Week Ahead, we wrap up the latest U.S. earnings season.
Zacks Research Director summarized its lessons for us—
The Q1 earnings season turned out to be everything that the market was looking for, and then some.
Companies easily beat top- and bottom-line estimates that had gone up ahead of the start of the reporting cycle, unlike in the past when estimates would go down before earnings releases.
Importantly, the tone and substance of management guidance and qualitative commentary has been very favorable, which is helping sustain the positive revisions trend for the current and coming periods.
For the 425 S&P 500 members that have reported Q1 results already, total earnings and revenues are up +47% and +10.3%, respectively. The proportion of these 425 index members beating EPS and revenue estimates is a very high 85.9% and 76.7%, respectively.
The very high earnings growth rate is not solely a result of easy comparisons to the year-earlier period, but rather reflective of genuine growth across a number of major sectors, including Technology.
We saw that the ‘Big 5’ Tech companies – Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) and Facebook – collectively enjoyed year-over-year growth rates of +104% in earnings on +41.5% in revenues.
We know that these unusually high growth rates would come down as we move through the remainder of the year, as comparisons will increasingly get tougher for these and other companies. That said, the aggregate earnings tally for Q1 is on track to reach an all-time quarterly record, as the chart below shows.
You can see in this chart that the 2021 Q1 record will get eclipsed by the last quarter of the year. In fact, it is very likely that even the Q3 tally will get revised higher than what we are seeing for Q1.
The fact that Q1 earnings are on track to reach an all-time record even though significant parts of the economy are still weighed down by Covid is an impressive achievement.
The sectors still dealing with the pandemic’s effects include the Transportation sector (particularly air carriers) and the Consumer Discretionary sector, which includes the leisure and hospitality businesses.
Next are Reuters’ five world market themes, reordered for equity traders.
(1) Sell in May and Go Away?
Global equities are down after three months of gains.
But markets aren’t far off record highs and price falls may reflect a setback for tech mega-caps rather than a wholesale exit from stocks. And with real bond yields deeply negative, a selloff should be short-lived.
Yet tailwinds are weakening. The first quarter likely marked the peak of the U.S. growth and earnings rebound. Deutsche Bank predicts a 10% correction in stocks, saying markets fall each time the ISM survey retreats from a peak — which it has just done.
The liquidity tide, too, is ebbing. Most central banks are not yet unwinding money-printing or raising rates but money supply growth has shrunk. And just how transitory will inflation be? As May progresses, these questions won't go away.
(2) Watching U.S. Treasury Auctions for Signs on Rates
Investors will watch the U.S. Treasury’s debt auctions for signs that demand remains steady after a yield surge roiled markets in the first quarter and fanned concerns that higher borrowing costs could hurt stocks, particularly growth sectors like technology.
The Treasury will auction $58 billion of three-year notes on Tuesday and $41 billion of 10-year notes on Wednesday, followed by $27 billion of 30-year bonds on Thursday.
The Federal Reserve's asset purchase schedule is due on May 13. The Fed kept Treasury purchases unchanged at $80 billion per month for the mid-April to mid-May period.
(3) Ah Yes, Bitcoin
Bitcoin hogged the crypto-currency limelight earlier this year, doubling in price before recently losing steam. Now it’s the turn of smaller rivals — the “altcoins” — to have their moment in the sun.
The second-largest coin, ethereum, hit a record $3,560, recently fueled by its use in a bond issue and the booming NFT sector. Meme-based digital coin Dogecoin, originally intended as a satire on the cryptocurrency boom, also hit an all-time high. Their rise knocked bitcoin's share of the $2.4 trillion crypto market to a near-two year low.
(4) Reopening of European Economies Is Close
After weeks of COVID-19 lockdowns, a reopening of European economies is close, and boosting sentiment. Tuesday's German ZEW sentiment survey could confirm a brightening outlook.
Germany might ease curbs on those fully vaccinated or recovered from COVID-19 as early as the weekend. France starts relaxing a night curfew and allowing restaurants to offer outside service from May 19.
After a slow start, the EU is expected to meet its target of delivering first vaccine doses to 70% of adults by end-summer, the Eurozone should get to 50% in June. That’s good news for tourism-dependent economies. Brussels’ recommendation to ease restrictions on some countries and travelers is putting a spring in the step of British airline stocks, too.
(5) Will Fresh Chinese Macro Data Force Government to Make Any Changes?
While global investors focus on inflation, in China it's credit that's the most likely source of pressure for policymakers.
Data on both due in coming days could shape Beijing's outlook, with inflation seen pretty subdued while loan growth will probably chug along.
The politburo recently emphasized steady-as-she-goes policy, but made notable mention of the need to dampen housing speculation and of the government's role in managing financial risks — possibly clues as to areas that might see reform or tightening.
That comes after a wobbly few months in its debt markets, with defaults at state-owned firms in November and trouble at bad-loan giant Huarong rattling confidence in recent weeks. There's no sense yet of a 2018-style de-leveraging push, but authorities might be looking to tap the brakes if loans leap.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s follow the trend this week.
I am going to only show stocks with a Zacks Momentum score of A, and see what I find.
(1) BioNTech (BNTX - Free Report) : Ah yes! The darling mRNA vaccine producer. At $168 a share, this is a $40.6B market cap stock now. I see a Zacks Value score of D, a Zacks Growth score of C (surprising!), and a Zacks Momentum score of A (not surprising).
(2) Western Digital (WDC - Free Report) : After a solid Q1 report, this memory chip company is back in style. I see a $70 share price and a $21.3B market cap. The chip shortage is helping this stock get back in favor with traders. I see a Zacks Value score of C, a Zacks Growth score of F, and a Zacks Momentum score of A.
(3) Orient Overseas International Ltd. (OROVY - Free Report) : This is a shipping transportation company. The stock trades at $85 a share and the market cap is $10.8B. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of A. You can’t beat that.
Vaccines, chips and shipping are hot? That actually makes sense to me.
Key Global Macro
I think the Chinese data, out early this week, will be the most discussed.
On Monday, we get mainland Chinese data on Foreign Direct Investment (+39.9% y/y in the prior report), New Loans (will 2730B move to 1625B this month?), and M2 Money Supply (a healthy +9.4% y/y growth pegged for April).
There is a U.S. Treasury 3-month and 6-month bill auction.
On Tuesday, we get mainland China’s CPI for April. +1.0% y/y is expected. However, their PPI should be up +6.6% y/y in April. That’s a hot reading.
On Wednesday, the U.S. Consumer Price Index (ex Food & Energy) should be up +2.3% y/y in April. Last month, it was +1.6%.
The Fed’s Richard Clarida gives a speech.
On Thursday, there is a 10-yr. U.S. Treasury note auction.
The U.S. PPI (ex-food & energy) should be up +3.1% y/y this month. That’s the same as last month.
U.S. initial jobless claims were 498K last week. What do we get this week? This data is falling, which counters any worries from last Friday’s nonfarm payroll miss. Until it doesn’t…
On Friday, U.S. retail sales may be up only +1.0% in April, after rising +9.7% on the back of stimulus checks in March.
U of Michigan consumer sentiment should be 89.5 in April, in line with the prior 88.3 reading.
Conclusion
I found the top Zacks Rank stocks — the three names I showed you that are trading hot — to be the most interesting Globally-related finds this week.
Keep hot stocks like (BNTX - Free Report) , WDC and OROVY) top of mind.
Fast-moving stocks markets are often solid forward indicators, moving ahead of macro fundamental data that comes out much later.
That’s it for me.
Regards,
John Blank