Equity Market Outlook: Earnings Season Is At Hand
The Rebound Is On
Last week marked the beginning of the first quarter earnings season. The banks were in the spotlight, many of them missing expectations by large margins, but there were mitigating factors. The banks, for the most part, have been raising the capital reserves in preparation for the viral-fallout and that cut into earnings. While bad at the headline level, the banks didn’t earn as little as it looks and they’re much better prepared for credit losses than at any other time in history. Good news for everybody.
This week marks the ramp to peak season. This week we’re looking for reports from dozens of S&P companies while the following two weeks mark the true “peak season”. The bad news is that earnings are going to be excruciatingly bad this quarter. The good news, and there is more good news than bad at this time, is the market has already priced in most if not all of the Q1 declines and is already looking forward and even beyond the next quarter. The outlook for 2020 is negative, about -5% EPS growth for the year, but the outlook for next year is so much better they don’t even compare. The full year 2021 should see EPS growth in the double-digit range, more than enough to offset 2020 and advance the market from 2019 levels.
The Technical Outlook Is Bullish But …
The technical outlook right now is bullish. The broad market hit bottom late last month and has been trending higher ever since. The Monday action this week is negative but chalk that up to the energy sector. Oil prices are hitting new lows as I write this post and that is dragging on the broad market EPS consensus outlook for this year and next. Taking that out of the picture, the SPX is trending higher and looks like it can continue to move higher this week.
The indicators are telling. Stochastic shows a bullish market and one that could trend sideways if not edge higher. MACD is bullish showing upward momentum persists and at strengths to rival the viral-downdraft. My prediction is the market will move sideways in a consolidation move this week. Once the earnings reports begin coming out and the market gets a measure of relief the rebound can continue. That said, there are some risks including worse than expected results or even worse, a rapidly deteriorating outlook for the 2nd quarter. What traders need to watch is the 30-day moving average. The price action is in their hands right now, if that group maintains support the odds of an SPX rally to 3,000 or higher is very good.
