The S&P 500 rose 1.2 percent last week to hit a record high, helped by a report on Friday showing that the US economy grew at a faster-than-expected annual rate of 3.2 percent as well as corporate earnings reports that have exceeded expectations.
Indeed, a CNN article suggested that the expected earnings recession is likely to be avoided.
“At the start of first-quarter earnings season, Wall Street analysts expected a decline of 2.5% in per-share profits, according to Credit Suisse. As of Friday morning, that estimate had climbed narrowly into positive territory,” the article said.
The article cited Credit Suisse estimates to say that S&P 500 profits will probably rise by 2.5-3 percent by the end of earnings season.
Nevertheless, the article suggested that “Wall Street isn't out of earnings trouble yet”.
Citing a Bespoke report, the article noted that companies that have beaten earnings estimates have gained less than 1 percent on their earnings reaction days, less than half the average one-day gain of 1.9 percent over the prior two decades, while companies that have missed earnings estimates have declined by an average of 4.6 percent, compared with the historical average of 3.5 percent.
Also, revenue has lagged, with only 54 percent of companies reporting revenues that have beaten estimates.
“That is definitely a concern,” Bespoke wrote.
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