Earnings Set to Jump 24%

Market Recap

Following a 3% jump last week, the S&P 500 continued to discover higher ground early this week. Investors shrugged off concerns following the halt in Johnson & Johnson's COVID-19 vaccine rollout and strong U.S. inflation figures.

The first true glimpse of the much-touted inflation return materialised on Tuesday as March CPI (Consumer Price Index) figures, a popular inflation metric, jumped by the highest amount in nearly nine years, kicking off what the majority of economists expect will be a brief period of higher inflation.

As interest rates cool off following the highs of previous weeks, the technology sector and the "Big 5 index" (Apple, Microsoft, Amazon, Google, and Facebook) have once again stolen the spotlight, interrupting value's recent run of relative gains versus growth stocks. For the second week in a row, some of these big tech names set record highs while stocks of companies more sensitive to cyclical economic changes lagged.

Despite the weekly fluctuations between the two, an increasing allocation to the "recovery areas" while also maintaining a healthy allocation to larger momentum-driven technology names continues to be the order of the day.

In more anecdotal news, the S&P 500 crossed over the 4,000 level for the first time in history last week. Granted, this figure has little direct relevance aside from being an easily digested round number. Still, it does help highlight how powerful this equity market rally has been, with the market now up almost 90% from the COVID induced lows last year—from around 2,200 on March 23, 2020, to the current 4,000+ level.

Elsewhere, Bitcoin continued its upward march. Follow its most successful Q1 in eight years, the Crypto hit a record close of $63,000 on Tuesday, extending its 2021 rally a day ahead of the listing of Coinbase, the largest U.S. cryptocurrency exchange.

Market Outlook

Inflation will continue to be the focal point that dictates market movements from here, with volatile growth-based story stocks and some dividend names the most obvious causalities if a persistent inflation increase pushes yields higher over the medium term.

The first-quarter earnings reporting season also kicks off this week, with expectations set for broadly positive news and an uptrend for U.S. equities thanks to a recovering economy. First-quarter earnings for companies in the S&P 500 are forecast to jump more than 24%, with the consumer discretionary and financials sectors expected to see the biggest gains as these 'recovery areas' benefit from the economic re-opening.

While a 24% jump in earnings may seem substantial, this is a year-over-year comparison, and you may recall that Q1 2020 was a less than ideal time for corporate earnings…. Or anyone for that matter.