The most bullish story in the stock market right now: Morning Brief

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Friday, April 8, 2022

Today’s newsletter is by Sam Ro, the author of TKer.co. Follow him on Twitter at @SamRo.

Before tensions escalated between Ukraine and Russia in February, a bullish stock market story had been unfolding: Wall Street analysts were revising up their forecasts for 2022 and 2023 corporate earnings.

Since then, geopolitical risks spiked, becoming the top concern among investors. The stock market got rocked, sending the S&P 500 (^GSPC) to a low of 4,114 on February 24.

Meanwhile, inflation data continued to confirm prices were rising at a troubling rate, which caused Federal Reserve Chair Jerome Powell and his colleagues to signal that they were willing to get more aggressive in tightening monetary policy.

Despite these headwinds, something surprising happened: Analysts continued to revise their forecasts for earnings higher.

According to FactSet, analysts expect the S&P 500 to earn $227.80 per share in 2022. This estimate is 2% higher than the $223.43 expected as of December 31, 2021.

Yes, the upward revision is modest. But it follows all of the new concerns that have emerged since the beginning of the year.

Some — not all — of this resilience can be explained by energy producers’ earnings, which have been bolstered by rising energy costs.

“A significant portion of the upgrade comes from the Energy sector (+2.0pp), while companies that are impacted by higher energy costs (-0.5pp) and those exposed to European (-0.2pp) have been minor drags,” Binky Chadha, chief U.S. equity strategist for Deutsche Bank, wrote on Tuesday. “Excluding the impact of these effects, full year estimates are still up +0.8%.”

So, what’s happening here?

It’s simple: The economy continues to be in great shape, supported by massive tailwinds.

Among other things, businesses and consumers have very healthy finances. Businesses continue to invest aggressively in their operations. Consumers — despite having gripes about inflation — continue to spend on goods and services. Consumer finances have been bolstered by $2.5 trillion in excess savings, which has allowed companies facing higher costs to preserve profit margins by raising prices.

Of course, we’re talking about expectations for earnings. And these expectations are sure to get updated as companies announce their quarterly results in the coming weeks. The lingering question: Will these expectations continue to get revised up, or will they finally begin to get revised down?

What to watch today

Economy

10:00 a.m. ET: Wholesale trade inventories, month-over-month, February final (2.1% expected, 2.1% in January)
10:00 a.m. ET: Wholesale trade sales, month-over-month, February (0.8% expected, 4.0% in January)

Earnings

Politics

President Biden will appear with Ketanji Brown Jackson at the White House at 12:15 p.m. ET to celebrate her confirmation to the Supreme Court. The two also celebrated yesterday as her final vote in the Senate came in.
Acting Comptroller of the Currency Michael Hsu will discuss stablecoins at 9:00 a.m. ET with a Georgetown Law professor.