Another crack may appear in the U.S. stock market.
“We don’t want to do too much of that (yet), but Wall Street analysts cut their S3 and 2021 earnings estimates for the S&P 500 last week,” DataTrek co-founder Nicholas Colas wrote Monday. “This, along with the slowdown in economic growth, will lead to greater volatility.”
Slightly revised earnings expectations from last week for the third quarter were due to adjustments made by analysts in the industrial and materials sectors, according to the note. Given current S&P 500 valuations, DataTrek said U.S. equities need the “final wind of growing earnings expectations,” as well as companies that exceed estimates.
“It’s a good idea to alleviate equity exposure,” Colas said in the note. “The next term is becoming a turbulent time.”
The S&P 500 SPX,
rose about 0.1% on Monday afternoon, and traded near its all-time high of 4536.95 on September 2, after falling 1.7% last week amid concerns that the coronavirus delta variant may slow economic recovery.
The materials sector of the S&P 500 fell 0.1% in trade on Monday afternoon, while the industrial sector rose 0.1%, according to FactSet data, in the last check.
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According to the DataTrek note, the S&P 500 is valued at 20.3x earnings estimates for 2022.
Late last week, Wall Street analysts estimated earnings per share for the third quarter of the S&P 500 would be $ 49.23, or $ 0.07 per share lower than expected the previous week, Colas wrote citing FactSet data. “As much as analysts have been persistently too conservative with their estimates since the second quarter of 2020, it’s worrying to see them reduce the numbers (however light they may be).”
RBC Capital Markets has raised its S&P 500 price target this year to 4,500 from 4,325, saying in a report Monday that its earnings per share forecast for the index has been revised further to $ 200. The bank also raised its 2022 EPS forecast to $ 222, while introducing a price target of $ 4,900 for next year.
But “a key risk we’re monitoring for the stock market – and our call – is the possibility that S&P 500 EPS growth will turn negative in early 2022,” Rori analysts led by Lori Calvasina told head of US equity strategy. report. “While we’re not worried about the economic downturn,” strategists who monitored “the possibility that S&P 500 EPS growth is weaker than the stock market can tolerate in early 2022” said.
Wall Street banks have issued recent warnings about a correction approaching the US stock market amid concern over widespread valuations. RBC also sees the risk of a setback later in the year, but sees it as “a buying opportunity,” according to its report.
See: There is a growing wall of concern unfolding for stocks to go up, Deutsche Bank says
DataTrek expressed its “confidence” that the S&P 500 this year could surpass its recent record high, despite expected volatility. While third-quarter earnings expectations have “stagnated,” U.S. large-cap stocks should have enough “earnings power” to exceed consensus estimates, according to the firm’s note.
“This will not necessarily help the current market sentiment,” Colas said. “We expect September to be volatile.”
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