After the markets posted solid gains this week pushing the major averages well into positive territory YTD and sending investors into the weekend singing “Happy Days Are Here Again”! Since last Friday’s close the S&P 500 is up 309 points or 4.53%, the NASDAQ advanced 1,565 points or 6.83% while the DOW jumped 1,530 points or 2.41%.
Show Me The Money Honey
With the first quarter earnings season officially underway. Some 10% of the S&P 500 companies have reported so far. Preliminary data is off to a fine start as the earnings growth rate is running a better than expected 13.2%. With 88% of companies reporting so far beating the number per FactSet Research. Revenues are also running ahead of initial expectations, up 9.9%. On track for a more than 3-year high. So far earnings have been particularly strong for the financial and communication services sectors. While the best revenue data has come from the financial sector so far.
The Future’s So Bright, I Gotta Wear Shades
Analysts are famously overly optimistic. The predictions for the balance of the year include earnings growth of 20.1%, 22.2% and 19.9% respectively for quarters 2-4 2026. While I admire their enthusiasm. I believe they are discounting the negative effects of the war with Iran going forward. While it is true that the negative economic effects of the war will largely affect countries other than the US. They should not be ignored. Solid earnings growth is helping to bring down average P/E ratios. With the forward 12-month P/E ratio slipping to 20.9 this week for the S&P 500 companies.
Will Peace Prevail?
Much of this weeks outsized market gains were the result of relief rallies triggered by ceasefire talk between Iran, Israel and the US. While the reopening of the Strait of Hormuz helped to slash global crude prices to less than $85/barrel. With tankers and other ships transiting the straight once again. Despite the announced US blockade. As the week came to a close with trading defined by geopolitics and the news cycle. Traders hoped for a durable peace and a return of stability to the Middle East and global energy markets.
Have a great weekend folks, I’ll be back next Friday.
Best, Caleb
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