By | March 27, 2023

By Senad Karaahmetovic

US futures were mixed in premarket Monday after stocks secured a strong weekly close on Friday. They are down about 0.2% while trading almost 0.4% higher.

Last week it rose 3.5% – its biggest weekly gain since November. The index is now approaching the 100 weekly moving average at 4205. On the valuation front, forward 12-month P/E ratio for the S&P 500 is 17.8, which is below the 5-year average (18.5%), but above the 10-year average (17.3).

Stocks were boosted by easing concerns about the health of the banking sector, while — the Fed’s preferred measure of inflation — came in below expectations on Friday, further fueling a rally in stocks.

(IXIC) rose 3.4% as it nears 2023 highs. ( DJI ) closed the week 3.2% higher with key near-term resistance sitting about 2% higher from current levels.

The key data for this week are Fridays and they come on the day the market is closed (Good Friday). Also, it’s out later today while it’s out on Wednesday.

The first quarter earnings season is about to begin

Earnings season for 1Q23 is expected to start later this month when the big banks come out with their quarterly results. The banks’ earnings will be under particular scrutiny after last month’s developments and the historic collapse of Silicon Valley Bank.

According to Barclays data, US deposits fell by $133 billion in the week ended March 22 after losing $129 billion in the week ended March 15.

Several companies have already reported their Q1 results with FactSet noting that 16 out of 17 S&P 500 companies reported an EPS beat for Q1. Vital Knowledge analysts expect the first quarter earnings season to be “rife with volatility.”

Analysts expect earnings to decline 6.6%, which would mark the biggest profit decline reported by the S&P 500 since the second quarter of 2020 (-31.8%). In terms of guidance, as many as 79 S&P 500 companies have issued negative EPS guidance.

According to FactSet, analysts cut their EPS estimates more than normal in the first quarter.

“The decline in bottom-up EPS estimates recorded in the first quarter was greater than the 5-year average, 10-year average, 15-year average and 20-year average.”

Still, the forward 12-month P/E ratio for the S&P 500 has increased since December as the skyrocketing index valuation has managed to offset lowered EPS estimates for 2023.

What analysts are saying about stocks

Oppenheimer: “The S&P 500 is stabilizing from its downtrend in 2022, and we think is more likely to break higher because the market leadership since Q4’22 has been stronger than a bear market rally. The market can be irrational, especially for short periods, but we would argue that economic signals can mislead investors more than market signals.”

Wells Fargo: “Continue to reduce cyclicality and risk with SPX above 4100. Maintain our 4200 closing price target. Observing a growing number of risks in 2H23: debt ceiling, tighter economic conditions, CRE and a possible resumption of student loan payments.”

JPMorgan: “Our view [is] that the shares will weaken during the rest of the year. We were bullish on stocks in the fourth quarter, and we expected positive trading to spill over into the first quarter, but we think one should be UW stocks from here.”

Morgan Stanley: “We think investors should continue to position portfolios more defensively and focus on companies that demonstrate high operational efficiency and high quality earnings (high cash flow relative to reported earnings and stable accruals). We see little evidence that a new bull market has begun and believe the bear still has unfinished business.”

Goldman Sachs: “While history suggests upside risk to our forecast for a flat S&P 500, we believe valuations and earnings each face specific headwinds that will prevent near-term returns from being as strong as usual.”

Vital Knowledge: “The data should be a tailwind for stocks as inflation resumes and the labor market cools – this is likely to be the catalyst that gets the SPX to ~4200-4300 by the end of April).”

Sevens Report: “The banking crisis has overshadowed economic statistics and inflation for most of March, but that should change this week when the key economic reports for March are released. For stocks to hold these recent gains, we need to see 1) hints that inflation is starting again and 2) a stable economy (and no signs of stagflation).”


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