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EARNINGS RECESSION IS LIKELY OVER

Submitted by Total Clarity Wealth Management, Inc. on January 25th, 2021

 

                 

January 19, 2021

EARNINGS RECESSION IS LIKELY OVER

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Chief Market Strategist, LPL Financial

               

 

This earnings season likely will be the last of the earnings recession. After year-over-year declines in the first three quarters of 2020, the fourth quarter likely will make it four in a row. Looking ahead, earnings are likely to grow solidly in the first quarter 2021 and throughout the year, which we think will enable stocks to grow into their lofty valuations.

 

EXPECT MODEST EARNINGS DECLINE

We expect solid upside to S&P 500 corporate earnings relative to current estimates. However, expecting a year-over-year increase may be too much to ask. Consensus is calling for a roughly 8.5% year-over-year decline in earnings per share (EPS) according to FactSet’s estimates [FIGURE 1].

We expect earnings to surprise to the upside by a solid margin again this quarter for a number of reasons.

 

Higher estimates. Estimates for the fourth quarter have risen by about 2.3% since October 1, 2020, which signals companies, will be able to deliver at least the typical several percentage points of upside. Estimates typically decline by about 4% during a quarter.

 

Guidance has been very positive. A very high 66% of companies that provided guidance during the fourth quarter guided numbers higher. That percentage is significantly higher than the five-year average of 33%.

 

 

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ELECTION PREVIEW PART II A TRUMP SECOND TERM: UPSIDE AND RISKS

Submitted by Total Clarity Wealth Management, Inc. on September 3rd, 2020

August 31, 2020

ELECTION PREVIEW PART II A TRUMP SECOND TERM: UPSIDE AND RISKS

Barry Gilbert, PhD, CFA, Asset Allocation Strategist, LPL Financial

Ryan Detrick, CMT, Chief Market Strategist, LPL Financial

Jeffrey Buchbinder, CFA, CAIA, CIPM, Senior Analyst, LPL Financial

               

A second term for President Donald Trump would likely feature a continuation of the pro-growth policies from the first term of his administration, and importantly for financial markets, a continuation of the status quo. Markets don’t like uncertainty, and while Trump’s negotiating style has been unpredictable at times, his commitment to lower taxes and deregulation may provide a consistent, market-friendly policy environment. We look more closely at what a second term for Trump could mean for the economy and markets.

AFTER THE CONVENTIONS, ELECTION SEASON IN FULL SWING

With both the Democratic and Republican conventions now behind us and Election Day only nine weeks away, we’re following the August 24 Weekly Market Commentary analysis of a potential November win for former Vice President Joe Biden with a look at the potential market impact of a second term for President Trump.

We focus strictly on the market impact of the election, with the economy also a secondary concern, since that feeds into market impact. But our evaluation of the market impact is not a voting recommendation. There is always more at stake in elections than simply markets. These previews have been grounded in the facts, focusing on the upside and potential concerns of each candidate’s administration. If the upside doesn’t seem realistic, it can be dismissed, but we still think it’s useful to get a plausible version of the potential market upside (or lack of downside if that’s the best case) on the table.

 

MARKETS SIGNAL THE ELECTION REMAINS A COIN TOSS

We continue to believe the election remains a coin toss. US presidential elections consistently have been close. As discussed last week, four of the past five elections have been decided by less than a 5% margin in the popular vote, so a landslide victory for either candidate appears unlikely. Although early polling data appears to show Biden as the front runner, we are also continuing to follow market signals, which currently suggest an incumbent victory.

As we mentioned last week, how the S&P 500 Index performs in the three months leading up to the election has been a good predictor for who wins the White House, whether it reflects the state of the economy or because it signals the greater uncertainty that comes with a change in party [FIGURE 1]. A positive market over this period may signal an increased likelihood that the incumbent party may win, while stock market losses during the same period have tended to predict an opposition party win. The stock market returns in the three months leading up to the election have correctly predicted the election result every time since 1984, and 87% of the time since 1928. Since the clock started ticking on this indicator August 3, the S&P 500 has been up almost 6% and at fresh record highs, clearly favoring Trump.

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