The first-quarter earnings season is kicking things off in high gear and looks even stronger than most could have anticipated.
As of last Friday, only 9% of S&P 500 companies released results from the latest quarter. And of these companies, 81% topped analysts’ earnings estimates, and the average earnings surprise was a whopping 30.3%, according to FactSet.
To put this into perspective, the average five-year earnings surprise is only 6.9%. If companies continue to wallop estimates in the upcoming weeks, the first quarter of 2021 could mark the biggest earnings surprises since FactSet started tracking data in 2008.
And it looks like that’s becoming even more likely. On Monday, S&P Capital IQ raised its first-quarter S&P 500 earnings growth estimate to 19.8% from its prior estimate of 14.8%.
So it’s clear to me that we’re at the start of a truly spectacular first-quarter earnings season. This is great news for fundamentally superior stocks, as they should post strong earnings results that drop kick and drive them higher. The reality is that year-over-year comparisons are easier this year given that the coronavirus pandemic wreaked havoc on many companies’ top and bottom lines in 2020. It also doesn’t hurt that the U.S. has staged a stunning economic rebound in the first quarter—and you need to look no further than recent economic data for proof.
Take the latest retail sales report as an example. Last week, the Commerce Department revealed that retail sales surged 9.8% in March, crushing economists’ expectations for a 6.1% increase. The rise comes on the heels of a 2.7% dip in February and a 7.6% increase in January. March retail sales were the strongest in 10 months.
The fact of the matter is that the stimulus checks in March inspired many Americans to open their wallets recently. Thanks in part to gun sales, sporting goods sales soared 23.5% in March, while clothing sales jumped 18.3%. Vehicle sales also climbed 15.1% last month. And with more restaurants and bars reopening their doors, sales at restaurants and bars rose 12.1% in March.
Clearly, consumers were spending up a storm, and that bodes well for first-quarter GDP growth.
In fact, in the wake of the March retail sales report, the Atlanta Fed upped its first-quarter GDP forecasts to an annual rate of 8.3%. That compares to its previous estimate for 6.2% economic growth. We’ll have more clarity about how the U.S. economy actually fared in the first quarter next Thursday when the Commerce Department releases its preliminary first-quarter GDP estimate.
Meanwhile, the Labor Department reported this morning that first-time unemployment claims dropped last week to 547,000. The figure is below the Dow Jones estimate for 603,000 and represents a new low for pandemic claims.
With the robust economic recovery here in the U.S., there are fears spreading that inflation is brewing—and they’re not wrong.
The Producer Price Index (PPI) rose 1% in March, exceeding economists’ expectations for only a 0.5% increase. Wholesale energy prices soared 5.9% and food prices climbed 0.6% last month. Core PPI, which excludes food and energy, increased 0.6% in March. In the past 12 months, PPI and core PPI have climbed 4.2% and 3.1%, respectively.
The Fed has certainly succeeded in “sparking” wholesale inflation, and we’ll have to wait and see if it is “transitory” as the Fed described.
The Consumer Price Index (CPI) also soared higher last month on the heels of a surge in gasoline prices. The CPI jumped 0.6% in March and is up 2.6% year-over-year. Economists were looking for a 0.5% increase last month. The CPI was driven higher by a 9.1% surge in gasoline prices in March. I should also add that retail gasoline prices have risen 22.5% in the past 12 months.
On the surface, the inflation numbers look a little scary. But when you exclude “transitory” energy costs, the CPI isn’t actually rising faster than economists’ expectations. Also, I know that inflation can spook a lot of investors, but actually growth stocks that post earnings exceeding the rate of inflation are typically great inflation hedges.
Lock and Load Time
So what should investors do? What are the best investments to make moving forward? What stocks should you avoid at all costs?
To help you make sense of everything, my InvestorPlace colleague, Matt McCall, and I have laid out our investing road map we believe will help you navigate the markets moving forward.
In fact, Matt and I believe we’re about to witness one of the biggest economic booms in U.S. history.
P.S. Any one of these events could send the stock market roaring higher, but with all three of these opportunities unfolding at the same time, it could be like shooting fish in a barrel.
And my forecasts aren’t based on gut feelings — but rather raw data, logic and probability. It allows me to uncover the truth about any individual stock or even the entire market.
If the numbers aren’t adding up, my proprietary algorithms will uncover it and alert me. My system also is able to identify stocks with accelerating profits and sales, as well as healthy buying pressure from institutional investors.
To be honest, the early readings from my quant-based systems are off the charts. But if you’re still haunted from the carnage COVID-19 released on the world, then you need to listen carefully to what Matt and I have to say.
The Editor (Louis Navellier) hereby discloses that as of the date of this email, the Editor (Louis Navellier), directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: