As the forthcoming earnings season approaches, investors are eagerly anticipating its potential to serve as a catalyst for further market gains.
Commencing this week, a slew of notable companies, including Delta Air Lines, Constellation Brands, JPMorgan Chase, and Fastenal, are slated to unveil their first-quarter earnings reports. Analysts are optimistic that these results will surpass current expectations, continuing the trend of positive earnings surprises witnessed over the past year. The consistent outperformance has been noteworthy, with S&P 500 companies exceeding earnings per share estimates by an average of 7.1% in the last four quarters, instilling confidence in the market’s resilience.
Although the magnitude of earnings beats may not match that of previous quarters due to potential economic deceleration, expectations remain high for robust performance. Chris Senyek, chief investment strategist at Wolfe Research, forecasts that S&P 500 companies will exceed earnings estimates by a “very healthy” 4% to 5%, aided by analysts’ downward revisions of 2.5% this year, which have set a lower bar for companies to surpass.
However, exceeding earnings estimates alone may not be sufficient to propel the market higher. Investors will also scrutinize corporate management’s forward-looking guidance to validate current valuations, which have expanded significantly in recent months. With the S&P 500 now trading at 20.1 times expected earnings per share for the next 12 months, up from 16.7 times previously, solid guidance indicating sustained sales and profit growth will be imperative to justify these elevated levels.
Encouragingly, early indicators suggest a favorable outlook. Over the past three months, more companies have raised earnings guidance than lowered it, as reported by 22V Research. This positive trend, coupled with expectations of sequential sales and earnings growth throughout the year for S&P 500 companies, bodes well for investor sentiment.
Analysts anticipate that management guidance during the earnings season will mirror Federal Reserve Chair Jerome Powell’s commitment to allowing the U.S. economy to “run hot.” This supportive stance, alongside positive corporate outlooks, is expected to provide a solid underpinning for equity markets to sustain their upward trajectory.
One particular company that investors will closely monitor during this earnings season is Constellation Brands, slated to report on April 11. Analysts are anticipating robust results, with fiscal-year fourth-quarter sales projected at $2.47 billion and earnings per share forecasted at $3.19. Known for its wine and beer offerings, Constellation Brands has a track record of surpassing bottom-line estimates and could provide guidance that potentially reverses recent declines in its stock price.
In summary, the upcoming earnings season is poised to play a pivotal role in driving market sentiment, with positive results and guidance expected to bolster further gains in equities. Investors will closely analyze corporate earnings reports and management commentary for insights into the trajectory of corporate profitability and overall market sentiment.