Another rapid surge by stocks might seem unlikely, given that the S&P 500 is up just over 11% to 4185 this year, leaving it 8.6% above the 3,800 Citigroup global equity predicted for the year end. Investors have bid up stocks on a giddy mix of vaccines, stimulus, and pent-up demand. Is it possible, as one analyst suggests, that another 9% leap lies ahead?
Maybe, if everything goes right. President Biden’s $4 trillion infrastructure bill would have to pass without big hikes to corporate and capital-gains taxes to finance it. The pandemic would have to be a nonissue by summer. Inflation would have to be minimal, limiting pressure on the Federal Reserve to keep interest rates low. Earnings estimates would have to rise, and valuations remain high.
Tom Essaye, founder of Sevens Report Research, is a believer. “That scenario is entirely possible, and if it comes to fruition, then we should expect the S&P 500 to trade into the mid-4,000s, or maybe higher,” he wrote in a note predicting a 4,500 S&P by year end. At that level, the index would reflect expectations for aggregate earnings per share of $200 for S&P 500 companies, assuming valuations don’t change relative to anticipated profits. Aggregate EPS of $200 is Wall Street’s consensus for 2022.
Of course, lots could go awry. Centrist Democrats in Congress could curb the infrastructure bill. Interest rates could keep rising even without higher inflation because 10-year Treasury yields remain below expected inflation rates. Bigger yields on Treasury debt would make bonds more appealing relative to stocks, weighing on valuations. That doesn’t mean investors shouldn’t buy stocks, but it might make sense to do it later, rather than sooner.
Next Week
Monday 4/19
Coca-Cola, IBM, M&T Bank, Prologis, United Airlines Holdings, and Zions Bancorp report earnings.
Tuesday 4/20
Abbott Laboratories, CSX, Edwards Lifesciences, Fifth Third Bancorp, Intuitive Surgical, Johnson & Johnson, KeyCorp, Lockheed Martin, Netflix, Northern Trust, Philip Morris International, Procter & Gamble, and Travelers report quarterly results.
Adobe, Bank of America, Boeing, Moody’s, Public Service Enterprise Group, and U.S. Bancorp hold their annual meetings of shareholders as proxy season kicks into high gear.
Wednesday 4/21
Anthem, ASML Holding, Baker Hughes, Chipotle Mexican Grill, Crown Castle International, Discover Financial Services, Halliburton, Lam Research, Nasdaq, NextEra Energy, and Verizon Communications release earnings.
Thursday 4/22
The European Central Bank announces its monetary-policy decision. The central bank is widely expected to keep its key short-term interest rate unchanged at negative 0.5%.
American Airlines Group, American Electric Power, AT&T, Biogen, Danaher, Dow, Equifax, Freeport-McMoRan, HCA Healthcare, Intel, Nucor, Old Dominion Freight Line, Quest Diagnostics, Southwest Airlines, Union Pacific, and Valero Energy hold conference calls to discuss quarterly results.
The National Association of Realtors reports existing-home sales for March. Consensus estimate is for a seasonally adjusted annual rate of 6.3 million homes sold, slightly higher than February’s 6.2 million. Existing-home sales are slightly off the recent peak from last October, but are stronger than at any point since the housing bubble burst nearly 15 years ago.
The Conference Board releases its Leading Economic Index for March. Economists forecast a 0.6% month-over-month increase, after a 0.2% gain in February. The Conference Board’s most recent forecast calls for 5.5% growth in gross domestic product this year.
Friday 4/23
American Express, Honeywell International, Kimberly-Clark, Regions Financial, and Schlumberger, release quarterly results.
IHS Markit releases both its Manufacturing and Services Purchasing Managers’ Index for April. Expectations are for a 60.3 reading for the Manufacturing PMI and a 60.5 reading for the Services PMI. Both estimates would be three-year highs for their respective indexes.
The Census Bureau reports sales of new single-family houses for March. Consensus estimate is for a seasonally adjusted annual rate of 831,000 homes sold, up from February’s 775,000 figure. Then, the median sales price of a new home was $349,400, just shy of December’s all-time high of $356,600.
Email: [email protected]
